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Persistence-Based Capital Allocation along the FOMC Cycle

Author

Listed:
  • Fulvio Ortu

    (Department of Finance and IGIER, Università Bocconi, Milan, Italy)

  • Pietro Reggiani

    (Finance Department, New York University, USA)

  • Federico Severino

    (Department of Finance, Insurance and Real Estate, Université Laval, Québec, Canada)

Abstract

The Federal Reserve holds Federal Open Market Committee and Board Meetings, with six- and two-week cadence, respectively. The financial literature associates these meetings with stock market cycles of corresponding frequencies. These can be exploited through a portfolio strategy that invests in the market at alternate weeks. Since this strategy lacks theoretical foundations, we provide a rigorous framework for detecting market cycles and determining optimal portfolios that profit from them. We isolate uncorrelated components of stock returns associated with two- and six-week cycles, we replicate them and design an optimal portfolio that maximizes the investor’s wealth by properly exploiting such cyclicality.

Suggested Citation

  • Fulvio Ortu & Pietro Reggiani & Federico Severino, 2025. "Persistence-Based Capital Allocation along the FOMC Cycle," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 15(01), pages 1-35, March.
    • Handle: RePEc:wsi:qjfxxx:v:15:y:2025:i:01:n:s2010139225500053
    DOI: 10.1142/S2010139225500053
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    More about this item

    Keywords

    Fed cycles; return persistence; stock market cycles; optimal portfolios;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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