Research / BFI Working PaperJun 29, 2017

Monetary Policy Slope and the Stock Market

We construct a slope factor from changes in federal funds futures of different horizons. A positive slope signals faster monetary policy tightening and predicts negative excess returns at the weekly frequency. Investors can achieve increases in weekly Sharpe ratios of 20% conditioning on the slope factor. The tone of speeches by the FOMC chair correlates with the slope factor. Slope predicts changes in future interest rates and forecast revisions of professional forecasters, but macro news does not drive the predictability of slope for future excess returns. Our findings are consistent with a delayed market reactions due to investor inattention.

More Research From These Scholars

BFI Working Paper Mar 1, 2019

Crowdsourcing Financial Information to Change Spending Behavior

Francesco D’Acunto, Alberto G. Rossi, Michael Weber
Topics:  Fiscal Studies
BFI Working Paper Mar 17, 2022

What Do the Data Tell Us About Inflation Expectations?

Francesco D'Acunto, Ulrike Malmendier, Michael Weber
Topics:  Monetary Policy
BFI Working Paper Oct 28, 2020

Political Polarization and Expected Economic Outcomes

Olivier Coibion, Yuriy Gorodnichenko, Michael Weber
Topics:  Uncategorized