Stock Returns over the FOMC Cycle
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What they found
The authors found that since 1994 the entire equity premium in the U.S. was earned in even weeks of the FOMC cycle (week 0, starting with the meeting, and weeks 2, 4, and 6 after), with average returns in odd weeks near zero or negative. The pattern was global for stocks but absent in Treasuries, and it lined up with the Fed's internal calendar: bi-weekly board meetings on the discount rate and the timing of informal communication. They argue the Fed systematically releases information (often reassuring, in the form of a 'Fed put') through speeches, minutes, and leaks in a pattern that follows this cycle.
What you can use
- Since 1994, stock returns have clustered in a two-week rhythm tied to the FOMC calendar, not just on the announcement day.
- The pattern is consistent with the market learning about Fed intentions through informal channels between meetings.
- Calendar effects tied to institutional schedules are more credible than seasonal ones, but they still decay once traded.
Caveats
The mechanism is inferred, not observed; the authors' interpretation of informal Fed communication is contested. Out-of-sample performance after 2016 is weaker. Free NBER version exists.
Tags: macro, fed, fomc, calendar-effect
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.