We study the effects of FOMC announcements of federal funds target rate decisions on individual stock returns, volatilities and correlations at the intraday level. For all three characteristics we find that the stock market responds differently to positive and negative target rate surprises. First, the average response to positive surprises (that is, bad news for stocks) is larger. Second, in case of bad news the mere occurrence of a surprise matters most, whereas for good news its magnitude is more important. These new insights are possible due to the use of high-frequency intraday data.

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Keywords high frequency data, interest rates surprises, monetary policy announcements, realized volatility
JEL Financial Markets and the Macroeconomy (jel E44), Monetary Policy (Targets, Instruments, and Effects) (jel E52), Information and Market Efficiency; Event Studies (jel G14)
Persistent URL dx.doi.org/10.1016/j.jbankfin.2009.09.012, hdl.handle.net/1765/18568
Series ERIM Top-Core Articles , Econometric Institute Reprint Series
Journal Journal of Banking & Finance
Chulia-Soler, H, Martens, M.P.E, & van Dijk, D.J.C. (2010). Asymmetric effects of federal funds target rate changes on S&P100 stock returns, volatilities and correlations. Journal of Banking & Finance, 34(4), 834–839. doi:10.1016/j.jbankfin.2009.09.012