Does the FOMC Cycle Still Drive Stock Returns? New Evidence from the US, UK, and Japan

Abstract

Cieslak et al. (2019) document that between 1994 and 2016, the US equity premium is earned entirely in even weeks of the Federal Open Market Committee cycle, and these even weeks also drive returns internationally. Updating their data, I show this result does not hold out-of-sample, weakening as early as 2004. Their proposed mechanism—informal leaks following biweekly board meetings—ceases after 2004, as meetings are no longer biweekly. Before 2004, outliers appear to drive the result. Finally, I construct central bank cycles for the UK and Japan and show that, when accounting for pre-announcement effects, the international result disappears.