Abstract
In November 2008, the United States (US) Federal Reserve began purchasing mortgage-backed security obligations, in an attempt to support the failing housing market and improve financial market conditions. This paper provides an investigation of the volatility effects associated with regularly scheduled US Federal Reserve quantitative easing (QE) announcements, using high-frequency returns data. We find significant and substantial increases of stock market volatility immediately after a policy announcement, peaking in the hour following each Federal Open Market Committee (FOMC) announcement. The increase in volatility is largest when the market is provided with forewarning of an announcement. Unexpected announcements lead to longer short-term volatility persistence. Volatility persistence is amplified when the contents of the surprise announcement are positive. Finally, we find evidence of an increase in market returns prior to a FOMC announcement.
| Original language | English |
|---|---|
| Pages (from-to) | 321-334 |
| Number of pages | 14 |
| Journal | Research in International Business and Finance |
| Volume | 48 |
| Early online date | 18 Jan 2019 |
| DOIs | |
| Publication status | Published - 30 Apr 2019 |
Keywords
- High-frequency data
- Policy announcements
- Quantitative easing
- Stock market volatility
ASJC Scopus subject areas
- Business, Management and Accounting (miscellaneous)
- Finance