Anomaly Returns and FOMC

摘要

We find that anomaly returns are generally unchanged during FOMC days. The average return on the long- and short-leg, of a comprehensive set of 207 anomalies, increases by 26.3 bps and 28.8 bps, respectively, prior to the FOMC and reverses back afterwards. But for a small group of anomalies that do have substantial changes, their profitability tends to go down with absolute pricing errors greater than usual. Our evidence challenges existing studies that find the CAPM perform better during the FOMC period. Furthermore, we uncover that the less participation of retail investors contributes to the decline of profitability. (Presented at China International Conference in Finance (CICF) 2023, Tsinghua SEM Seminar Series, Renmin University Seminar Series, Tongji University Seminar Series, Nanjing University Seminar Series.)