39th Annual Student Research Conference
Monetary Policy Shocks and the Size Effect in Stock Market Reactions: Evidence from FOMC Announcements, 2012–2023
Leo M. Garlenc-Ricci
Dr. Xiaofen Chen, Faculty Mentor
This paper examines how unexpected U.S. monetary policy changes affect stock returns across firm sizes, using an event-study framework and monetary policy shocks computed by Bauer and Swanson (2023). Using 102 Federal Open Market Committee (FOMC) announcements for the period 2012-2023, I regress daily returns of Fama-French size-sorted portfolios, as well as daily index log price change for the S&P 500 and Russell 2000, on both orthogonalized and non-orthogonalized policy surprises. Contrary to earlier studies that document strong announcement-day reactions, results for the post-2012 period shows statistically insignificant responses on the announcement day, followed by economically meaningful and statistically significant negative returns one day after the policy shock. These results suggest that the timing and strength of the asset-price channel have changed in recent years with small, delayed market reactions to monetary policy shocks.
Keywords: Monetary policy shocks, FOMC announcements, Stock market reactions, Firm size portfolios, Asset pricing, Monetary policy transmission, Event-study methodology
Topic(s):Economics
Presentation Type: Oral Presentation
Session: 3201-2
Location: SUB 3201
Time: 8:45