IDEAS home Printed from https://ideas.repec.org/a/wly/jfutmk/v31y2011i10p995-1010.html
   My bibliography  Save this article

The Fed's policy decisions and implied volatility

Author

Listed:
  • Sami Vähämaa
  • Janne Äijö

Abstract

This study examines how the Fed's monetary policy decisions affect the implied volatility of the S&P 500 index. The results show that stock market uncertainty is significantly affected by the Fed's policy decisions. In particular, we find that implied volatility generally decreases after FOMC meetings, while the relationship between target rate surprises and market uncertainty appears positive. However, our results also suggest that the apparent positive relationship between policy surprises and implied volatility is mostly driven by the volatility‐reducing effects of negative surprises. We further document that implied volatility is affected by both scheduled and unscheduled policy actions, with the scheduled path surprises having the strongest impact on volatility. Finally, our findings indicate that the impact of monetary policy decisions on implied volatility is more pronounced during periods of expansive policy. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark

Suggested Citation

  • Sami Vähämaa & Janne Äijö, 2011. "The Fed's policy decisions and implied volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(10), pages 995-1010, October.
  • Handle: RePEc:wly:jfutmk:v:31:y:2011:i:10:p:995-1010
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:ids:ijsuse:v:10:y:2018:i:3:p:205-225 is not listed on IDEAS
    2. López, Raquel, 2015. "Do stylized facts of equity-based volatility indices apply to fixed-income volatility indices? Evidence from the US Treasury market," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 292-303.
    3. Phiri, Andrew, 2017. "Has the South African Reserve Bank responded to equity prices since the sub-prime crisis? An asymmetric convergence approach," MPRA Paper 76542, University Library of Munich, Germany.
    4. Phiri, Andrew, 2016. "Did the global financial crisis alter equilibrium adjustment dynamics between the US Fed rates and stock price volatility in the SSA region?," MPRA Paper 69976, University Library of Munich, Germany.
    5. repec:eee:reveco:v:58:y:2018:i:c:p:127-139 is not listed on IDEAS
    6. Krieger, Kevin & Mauck, Nathan & Vazquez, Joseph, 2015. "Comparing U.S. and European market volatility responses to interest rate policy announcements," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 127-136.
    7. Andrew Phiri, 2016. "Did the global financial crisis alter equilibrium adjustment dynamics between the US federal fund fund rates and stock price volatility in the SSA region?," Economics Bulletin, AccessEcon, vol. 36(2), pages 778-788.
    8. Andrew Phiri, 2018. "Has the South African Reserve Bank responded to equity returns since the sub-prime crisis? An asymmetric convergence approach," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 10(3), pages 205-225.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jfutmk:v:31:y:2011:i:10:p:995-1010. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery). General contact details of provider: http://www.interscience.wiley.com/jpages/0270-7314/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.