The FOMC risk shift

We identify a component of monetary policy news that is extracted from high-frequency changes in risky asset prices. These surprises, which we call “risk shifts”, are uncorrelated, and therefore complementary, to risk-fr
We identify a component of monetary policy news that is extracted from high-frequency changes in risky asset prices. These surprises, which we call “risk shifts”, are uncorrelated, and therefore complementary, to risk-free rate surprises. We show that (i) risk shifts capture the lion’s share of stock price movements around FOMC announcements; (ii) that they are accompanied by significant investor fund flows, suggesting that investors react heterogeneously to monetary policy news; and (iii) that price pressure amplifies the stock market response to monetary policy news. Our results imply that central bank information effects are overshadowed by short-term dynamics stemming from investor rebalancing activities and are likely to be more difficult to identify than previously thought.
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Metadaten
Author:Tim-Alexander Kroencke, Maik Schmeling, Andreas Schrimpf
URN:urn:nbn:de:hebis:30:3-573940
DOI:http://dx.doi.org/10.2139/ssrn.3774275
Parent Title (English):SAFE working paper ; No. 302
Series (Serial Number):SAFE working paper series (302)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2021
Year of first Publication:2021
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2021/02/09
Tag:Equity Premium; Fund Flows; Monetary Policy Surprises; Portfolio Rebalancing; Price Pressures
Issue:This version: January 25, 2021
Pagenumber:89
Institutes:Wirtschaftswissenschaften
House of Finance (HoF)
Center for Financial Studies (CFS)
Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:E44 Financial Markets and the Macroeconomy
G10 General
G12 Asset Pricing; Trading volume; Bond Interest Rates
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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