Phenomena of Anticipatory Returns: Equity Market Trends Preceding Major Central Bank Meetings

Abstract

In this paper I evaluate equity market dynamics in the lead-up to central bank meetings. I find large pre-FOMC returns experienced by major equity indices, consistent with Lucca and Moench (2011), and I also find large pre-ECB returns for major European equities, a strong contrast to the results of Brusa et. al. (2017). I con firm that their methodology was the primary cause of insigni cant results. There is also evidence that the relative timing of central bank meetings among the FOMC, ECB, and BOE is quite important in determining both the magnitude and direction of returns over the sample period. Potential explanations for these phenomena are offered, but come with drawbacks.