Journal of Financial Economics Vol. 165 2025
Fed information effects: Evidence from the equity term structure
Abstract
Do investors interpret central bank target rate decisions as signals about the current state of the economy? We study this question using a short-term equity asset that entitles the owner to the near-term dividends of the aggregate stock market. We develop a stylized model of monetary policy and the equity term structure and derive tests of Fed information effects using the short-term asset announcement return. Consistent with the existence of information effects, we find that the short-term asset return in a 30-minute window around FOMC announcements loads positively on monetary policy surprises. Furthermore, the announcement return predicts near-term macroeconomic growth.
- DOI
- 10.1016/j.jfineco.2024.103988
- Volume
- 165
- Pages
- 103988
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref