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 May 16, 2022

Climate Change and Individual Behavior

René Bernard, Panagiota Tzamourani, Michael Weber
Topics:  Energy & Environment
BFI Working Paper Apr 13, 2020

Labor Markets During the COVID-19 Crisis: A Preliminary View

Olivier Coibion, Yuriy Gorodnichenko, Michael Weber
Topics:  COVID-19, Employment & Wages
BFI Working Paper Jan 12, 2022

Inclusive Monetary Policy: How Tight Labor Markets Facilitate Broad-Based Employment Growth

Nittai K. Bergman, David Matsa, Michael Weber
Topics:  Monetary Policy