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Does FOMC Tone Really Matter? Statistical Evidence from Spectral Graph Network Analysis

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  • Jaeho Choi
  • Jaewon Kim
  • Seyoung Chung
  • Chae-shick Chung
  • Yoonsoo Lee

Abstract

This study examines the relationship between Federal Open Market Committee (FOMC) announcements and financial market network structure through spectral graph theory. Using hypergraph networks constructed from S\&P 100 stocks around FOMC announcement dates (2011--2024), we employ the Fiedler value -- the second eigenvalue of the hypergraph Laplacian -- to measure changes in market connectivity and systemic stability. Our event study methodology reveals that FOMC announcements significantly alter network structure across multiple time horizons. Analysis of policy tone, classified using natural language processing, reveals heterogeneous effects: hawkish announcements induce network fragmentation at short horizons ($k=6$) followed by reconsolidation at medium horizons ($k=14$), while neutral statements show limited immediate impact but exhibit delayed fragmentation. These findings suggest that monetary policy communication affects market architecture through a network structural transmission, with effects varying by announcement timing and policy stance.

Suggested Citation

  • Jaeho Choi & Jaewon Kim & Seyoung Chung & Chae-shick Chung & Yoonsoo Lee, 2025. "Does FOMC Tone Really Matter? Statistical Evidence from Spectral Graph Network Analysis," Papers 2510.02705, arXiv.org.
    • Handle: RePEc:arx:papers:2510.02705
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    File URL: http://arxiv.org/pdf/2510.02705
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