The Puzzling Pre-FOMC Announcement “Drift”
Abstract: For many years, economists have struggled to explain the ?equity premium puzzle??the fact that the average return on stocks is larger than what would be expected to compensate for their riskiness. In this post, which draws on our recent New York Fed staff report, we deepen the puzzle further. We show that since 1994, more than 80 percent of the equity premium on U.S. stocks has been earned over the twenty-four hours preceding scheduled Federal Open Market Committee (FOMC) announcements (which occur only eight times a year)?a phenomenon we call the pre-FOMC announcement ?drift.?
JEL Classification: E5;G1;
File(s): File format is text/html https://libertystreeteconomics.newyorkfed.org/2012/07/the-puzzling-pre-fomc-announcement-drift.html
Provider: Federal Reserve Bank of New York
Part of Series: Liberty Street Economics
Publication Date: 2012-07-11