Chulia --The Effects of Federal Funds Target Rate Changes on S&P100 Stock Returns, Volatilities

Chulia --The Effects of Federal Funds Target Rate Changes on S&P100 Stock Returns, Volatilities

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Unformatted text preview: ERIM R EPORT S ERIES R ESEARCH IN M ANAGEMENT ERIM Report Series reference number ERS-2007-066-F&A Publication April 2009 Number of pages 51 Persistent paper URL http://hdl.handle.net/1765/10610 Email address corresponding author [email protected] Address Erasmus Research Institute of Management (ERIM) RSM Erasmus University / Erasmus School of Economics Erasmus Universiteit Rotterdam P.O.Box 1738 3000 DR Rotterdam, The Netherlands Phone: + 31 10 408 1182 Fax: + 31 10 408 9640 Email: [email protected] Internet: www.erim.eur.nl Bibliographic data and classifications of all the ERIM reports are also available on the ERIM website: www.erim.eur.nl The Effects of Federal Funds Target Rate Changes on S&P100 Stock Returns, Volatilities, and Correlations Helena Chulia-Soler, Martin Martens, and Dick van Dijk E RASMUS R ESEARCH I NSTITUTE OF M ANAGEMENT REPORT SERIES RESEARCH IN MANAGEMENT A BSTRACT AND K EYWORDS Abstract We study the effects of FOMC announcements of Federal funds target rate decisions on individual stock returns, volatilities and correlations at the intraday level. For all three characteristics we find that the stock market responds differently to positive and negative surprises. First, the average response to negative surprises is larger. Second, in case of bad news the mere occurrence of a surprise matters most, whereas for good news its magnitude is more important. These new insights are possible due to the use of intraday data. Financials and IT stocks show the strongest reaction, whereas Utilities stocks respond the least. Free Keywords monetary policy announcements, interest rate surprises, high-frequency data, realized volatility Availability The ERIM Report Series is distributed through the following platforms: Academic Repository at Erasmus University (DEAR), DEAR ERIM Series Portal Social Science Research Network (SSRN), SSRN ERIM Series Webpage Research Papers in Economics (REPEC), REPEC ERIM Series Webpage Classifications The electronic versions of the papers in the ERIM report Series contain bibliographic metadata by the following classification systems: Library of Congress Classification, (LCC) LCC Webpage Journal of Economic Literature, (JEL), JEL Webpage ACM Computing Classification System CCS Webpage Inspec Classification scheme (ICS), ICS Webpage Asymmetric Effects of Federal Funds Target Rate Changes on S&P100 Stock Returns, Volatilities, and Correlations * Helena Chulia-Soler Department of Economics and Business Universitat Oberta de Catalunya Martin Martens Department of Finance Erasmus University Rotterdam Dick van Dijk † Econometric Institute Erasmus University Rotterdam April 2009 Abstract We study the effects of FOMC announcements of Federal funds target rate decisions on individual stock returns, volatilities and correlations at the intra- day level. For all three characteristics we find that the stock market responds differently to positive and negative surprises. First, the average response to negative surprises is larger. Second, in case of bad news the mere occurrencenegative surprises is larger....
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Chulia --The Effects of Federal Funds Target Rate Changes on S&P100 Stock Returns, Volatilities

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