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Biweekly performance of low-risk anomalies over the FOMC cycle

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  • Yun, Jaesun
  • Kwon, Kyung Yoon

Abstract

This paper examines how the performance of low-risk anomalies varies over the FOMC cycle as they are expected to be weaker as uncertainty is resolved following an FOMC meeting. We form a low-minus-high risk portfolio or betting-against-risk (BAR) portfolio, mimicking low-risk anomalies, using four proxies of risk, and find the biweekly pattern of returns for all four BAR portfolios after the FOMC meeting consistent with Cieslak et al. (2019). Taking advantage of the FOMC meeting schedule being known in advance, we propose dynamic BAR strategies. We find that the dynamic BAR strategy significantly outperforms the original low-minus-high risk portfolio.

Suggested Citation

  • Yun, Jaesun & Kwon, Kyung Yoon, 2023. "Biweekly performance of low-risk anomalies over the FOMC cycle," Finance Research Letters, Elsevier, vol. 58(PC).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pc:s154461232300870x
    DOI: 10.1016/j.frl.2023.104498
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    More about this item

    Keywords

    Low-risk anomaly; Beta anomaly; Betting against beta; Dynamic strategy; FOMC meeting;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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