IFin Seminar, Julien Cujean, University of Bern "Asset Pricing on FOMC Announcements"
Institute of Finance
Date: 2 March 2023 / 12:25 - 13:40
Speaker: Julien Cujean, University of Bern
Title: "Asset Pricing on FOMC Announcements "
Date: March 2, 2023
Time: 12:25 - 13:40
Room: A-24 (red building)
USI West Campus
Asset-pricing facts on FOMC announcements have changed strikingly in the last decade. The pre-announcement drift has disappeared, and other formerly established facts---the announcement premium and a stronger CAPM---now concentrate on a subset of announcements. We propose these distinct patterns correspond to two equilibrium outcomes. The drift can be switched on and off across equilibria, which has implications for return informativeness, beta dispersion and premia, and the way they are responsible for a stronger CAPM. The model reveals the key in understanding the facts is to condition on good and bad news, and market noise. High-frequency data shows the drift is mostly present and highly informative upon good news, and the equilibrium shift is likely unrelated to Fed's improved guidance but to the rise of market noise.