Communicating with Many Tongues: FOMC Speeches and U.S. Financial Market Reaction

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Communicating with Many Tongues: FOMC Speeches and U.S. Financial Market Reaction

Author Info

Bernd Hayo () (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
Ali M. Kutan (Southern Illinois University Edwardsville and the William Davidson Institute, Michigan)
Matthias Neuenkirch () (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)

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Abstract

This paper studies the effects of FOMC communication on U.S. financial markets’ returns and volatility using a GARCH model over the period from 1998 to 2006. We build a new data set that includes information on all FOMC speeches, post-meeting statements, monetary policy reports and testimonies. Our results can be summarized as follows: first, the impact on both returns and volatility is larger if the communication channel is more formal. However, since speeches happen much more often than other forms of communication, their absolute aggregate effect on financial markets is economically significant. Second, the effects of Fed communications tend to follow some sort of hierarchy: the Board of Governors (BoG) members have a greater impact than regional presidents, the chairman and vice chairman more influence than other BoG members and voting regional Fed presidents affect markets more than non-voting ones. Finally, news agencies appear to perform the role of a filter for financial market actors, who react more to newswire reports than actual speeches.

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Publisher Info
Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 200808.

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Length: 32 pages
Date of creation: 2008
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:200808

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-07-20 (All new papers)
NEP-CBA-2008-07-20 (Central Banking)
NEP-MAC-2008-07-20 (Macroeconomics)
NEP-MON-2008-07-20 (Monetary Economics)

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This page was last updated on 2009-12-2.

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