Trading the Pre-FOMC Drift in U.S. Equities
Summary
The document describes a calendar effect in which U.S. equity returns tend to be unusually strong around scheduled Federal Open Market Committee meetings. It outlines a simple long-only timing rule: hold an S&P 500-linked instrument from the close before a meeting through the close after it, and otherwise remain in cash. The page also discusses research finding that meeting dates made up 4.42% of trading days but accounted for over 13% of cumulative returns from 1960 to 2000. Other cited work reports that much of the return pattern occurs before policy announcements and links it to changes in uncertainty or risk premia.
The proposed explanation is that markets may respond positively as uncertainty about the announcement resolves, although the cited studies offer competing interpretations. The strategy has brief equity exposure and is explicitly described as unsuitable as a bear-market hedge. The evidence is based on historical studies; the page gives no complete transaction-cost analysis or assurance that the effect will persist, so the reported anomaly should not be treated as a guaranteed result.
Key ideas
- The proposed rule holds an S&P 500-linked instrument across scheduled FOMC meetings and stays in cash otherwise.
- A cited study reports that FOMC meeting dates were a small share of trading days but contributed over 13% of cumulative returns from 1960 to 2000.
- Several cited papers locate substantial abnormal returns before the policy announcement.
- Some research links the drift to uncertainty or risk-premium changes, while its cause remains debated.
- Brief long exposure to equities does not make the strategy a hedge during bear markets.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.