Article
The FOMC announcement returns on long-term US and German bond futures
Journal of Banking and Finance
(2021)
Abstract
We examine the impact of monetary policy announcements by the Federal Open Market Committee (FOMC) on long-term US and German bond futures. Using transaction-level data during the post-financial crisis period, we observe a sizable post-announcement drift in government bond markets. A trading strategy of investing in the market after expansionary shocks and shorting the market following contractionary surprises yields up to four times the Sharpe ratio of buy-and-hold investment. The post-FOMC announcement drift coincides with more informative order flows in the post-announcement period, and it persists for 15 days. Moreover, our study shows an absence of pre-FOMC announcement drift. Our findings shed some light on how the bond markets react to public news arrival.
Keywords
- FOMC announcement,
- Government bond futures,
- Market efficiency,
- Return drift
Disciplines
Publication Date
February, 2021
DOI
10.1016/J.JBANKFIN.2020.106027
Citation Information
Ivan Indriawan, Feng Jiao and Yiuman Tse. "The FOMC announcement returns on long-term US and German bond futures" Journal of Banking and Finance Vol. 123 (2021) Available at: http://works.bepress.com/yiuman-tse/141/