Asymmetric Effects of Federal Funds Target Rate Changes on S&P100 Stock Returns, Volatilities, and Correlations – APPENDIX –
Helena Chulia-Soler
Martin Martens
Department of Economics and Business Universitat Oberta de Catalunya
Department of Finance Erasmus University Rotterdam
Dick van Dijk∗ Econometric Institute Erasmus University Rotterdam
August 2009
This appendix contains additional results not reported in detail in the main text. These include results for (i) the individual S&P 100 stocks, (ii) an analysis of the impact of FOMC announcements on daily returns, and (iii) additional analysis of asymmetries in the effects of FOMC news.
∗
Econometric Institute, Erasmus University Rotterdam, P.O. Box 1738, NL-3000 DR Rotterdam, The Netherlands, e-mail:
[email protected], Phone: +31 10 4081263; Fax: +31 10 4089162 (corresponding author)
We compute the unexpected Federal funds target rate change or the “surprise” S as S=
¢ D ¡ 0 0 fd − fd−1 , D−d
(A.1)
where fd0 is the current-month futures rate at the end of the announcement day d, and D is the number of days in the month. In order to avoid disturbances from endof-month effects in the effective funds rate, we use the change in the next month’s futures rate for announcements made within the last seven calendar days of the month. The surprise S is measured in basis points. For returns, we first examine the effects of the actual target rate change by means of the regression Rit = αi + βi ∆F Ft + εit ,
(A.2)
where Rit is the return for stock i in the five-minute interval following the news release (or the daily return) on day t, and ∆F Ft is the actual change in the Federal funds target rate, both measured in basis points. The second regression decomposes the actual target rate change in the expected component and the surprise, Rit = αi + βi St + γi (∆F Ft − St ) + εit ,
(A.3)
where St is the surprise (in basis points) measured by means of the change in the Federal funds futures rate, as defined in (A.1). In the third regression we allow for different effects of reversal decisions (which change the direction of short-term interest rates, that is, the first target rate increase following a period of decreases or vice versa), Rit = αi + βi St + γi (∆F Ft − St ) + δi St D(REVt ) + εit ,
(A.4)
where D(REVt ) is a 0-1 dummy indicating whether or not a reversal decision was taken in the meeting at time t. In addition, we test whether the post-announcement return is different following positive and negative surprises, and whether only the occurrence of a surprise matters or also its magnitude by means of the regression Rit = α0i +(α1i +β1i St )D(St < 0)+(α2i +β2i St )D(St > 0)+δi St D(REVt )+εit , (A.5) where D(A) is a dummy variable taking the value 1 if the event A is true and 0 otherwise. Other types of asymmetries are also investigated, by redefining the dummy variable appropriately. 1
We compute the realized volatility (RV) for stock i on day t for the 60-minute window between 10 minutes before the announcement until 50 minutes thereafter as v u X u u 2 RVit = t Rit,k , (A.6) k=l,k6=0
where Rit,k is the five-minute return for stock i in interval k of day t, with the interval k = 0 corresponding to the first five minutes after the announcement, where we set l = −2 and u = 9 to capture the selected 60-minute window. We omit the first five-minute interval following the announcement (k = 0) to avoid spurious volatility effects from the possible jump in prices due to the FOMC announcement. For the same reason, we use the concept of bipower variation (BPV): v u u−1 uπ X BP Vit = t |Rit,k ||Rit,k+1 |. 2 k=l
(A.7)
This measure of volatility is not affected by the presence of jumps and delivers a consistent estimate of the continuous part of volatility. We examine the effects of target rate changes and surprises on stock volatility by means of regressions similar to the ones used for stock returns, except that for obvious reasons we now use absolute target rate changes and surprises. Specifically, we regress the daily change in the 60-minute realized volatility on the absolute actual target rate change, and on the absolute surprise and the absolute expected target rate change with or without allowing for different effects of reversal decisions, that is ∆RVit = αi + βi |∆F Ft | + εit ,
(A.8)
∆RVit = αi + βi |St | + γi |∆F Ft − St | + εit ,
(A.9)
∆RVit = αi + βi |St | + γi |∆F Ft − St | + δi |St |D(REVt ) + εit ,
(A.10)
where ∆RVit denotes the difference between realized volatility for stock i during the 60-minute window starting 10 minutes before the target rate decision is made public and during the same window on the day before. To examine whether the response of volatility to negative news is stronger than the response to positive news, we estimate by the regression ∆RVit = α0i + (α1i + β1i |St |)D(St < 0)+ (α2i + β2i |St |)D(St > 0) + δi |St |D(REVt ) + εit . (A.11) 2
Again, alternative asymmetries are also investigated using a similar regression. The realized correlation (RC) between stocks i and j for the announcement on day t is computed as
Pu
Rit,k Rjt,k , (A.12) RVit RVjt where RVit and RVjt are the realized volatilities for stocks i and j computed accordRCijt =
k=l,k6=0
ing to (A.6). Again, to avoid the large impact of the possible jump in prices due to the FOMC announcements we omit the interval k = 0 in the numerator of (A.12). We also use the realized bipower correlation P π u−1 k=l |Rit,k + Rjt,k ||Rit,k+1 + Rjt,k+1 | − |Rit,k − Rjt,k ||Rit,k+1 − Rjt,k+1 | BP Cijt = . 8 BP Vit BP Vjt (A.13) In the regression analysis, we use the Fisher transformation µ ¶ 1 1 + RCijt F (RCijt ) = log , 2 1 − RCijt where RCijt is the realized correlation between stocks i and j during 60-minute windows (from 10 minutes before until 50 minutes after) around FOMC announcements. Just like for volatilities we consider the change in (the transformed) correlations in the 60 minutes around the FOMC announcement and the corresponding window on the day before. We regress the daily change in transformed realized correlations on the absolute actual target rate change, and on the absolute surprise and the absolute expected target rate change with or without allowing for different effects of reversal decisions, that is, ∆F (RCijt ) = αij + βij |∆F Ft | + εij,t ,
(A.14)
∆F (RCijt ) = αij + βij |St | + γij |∆F Ft − St | + εij,t ,
(A.15)
∆F (RCijt ) = αij + βij |St | + γij |∆F Ft − St | + δij |St |D(REVt ) + εij,t ,
(A.16)
compare the regressions for realized volatility in (A.8)-(A.10). Finally, asymmetry is examined by estimating the regression ∆F (RCijt ) = α0ij + (α1ij + β1ij |St |)D(St < 0)+ (α2ij + β2ij |St |)D(St > 0) + δij |St |D(REVt ) + εij,t , (A.17) for all pairs of stocks i and j. 3
Figure A.1: Stock returns around FOMC announcements 15 10
Average return
5 0 -5 -10 -15
Positive surprise Negative surprise No surprise
-20 -25 -10
-5
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
Event time Note: The figure shows the average returns for the S&P100 constituents in five-minute intervals around the announcement of the Federal funds target rate decision. The label ’5’ on the horizontal axis indicates the average return in the first 5 minutes after the announcement. The graph is based on the 77 scheduled FOMC meetings between May 1997 and October 2006, which are split into 23 ’No surprise’, 28 ’Positive surprise’ and 26 ’Negative surprise’ cases.
4
Table A.1: Five-minute returns following FOMC announcements All
Rate Rate increase decrease (23 obs) (12 obs)
(77 obs)
Positive Negative surprise surprise (28 obs) (26 obs)
All stocks (100 stocks)
−3.79∗∗∗ (51.66)
1.68∗∗∗ 1.41∗∗∗ (43.08) (83.82)
−21.06∗∗∗ 12.19∗∗∗ (50.22) (62.30)
Consumer Discretionary (15)
−3.35∗∗∗ (49.30)
1.33∗∗∗ 2.11∗∗∗ (46.58) (78.81)
−22.35∗∗∗ 14.15∗∗∗ (41.49) (62.86)
Consumer Staples (11)
−3.62∗∗∗ (42.28)
−0.31 (31.35)
−2.73∗∗∗ (70.38)
−18.39∗∗∗ 8.93∗∗∗ (42.91) (49.01)
Energy (6)
−2.17∗∗∗ (45.78)
1.46∗∗∗ −0.51 (28.84) (75.39)
−14.63∗∗∗ 10.26∗∗∗ (49.66) (50.20)
Financials (14)
−3.08∗∗∗ (70.54)
8.98∗∗∗ 7.93∗∗∗ (61.16) (121.39)
−23.78∗∗∗ 18.92∗∗∗ (65.22) (91.12)
Health Care (10)
−2.54∗∗∗ (39.80)
−0.91∗∗ (33.68)
−0.78 (59.97)
−15.54∗∗∗ 10.07∗∗∗ (39.46) (45.16)
Industrials (14)
−5.05∗∗∗ (43.41)
−3.06∗∗∗ 0.22 (38.50) (66.47)
−20.36∗∗∗ 8.62∗∗∗ (40.42) (52.09)
IT (13)
−6.26∗∗∗ (61.00)
3.50∗∗∗ −1.07 (45.08) (96.84)
−29.30∗∗∗ 13.77∗∗∗ (65.86) (67.37)
Materials (7)
−3.68∗∗∗ (45.59)
1.86∗∗∗ 1.73∗ (43.38) (71.64)
−19.76∗∗∗ 12.78∗∗∗ (42.44) (54.57)
Telecommunications (5)
−4.06∗∗∗ (57.22)
2.04∗∗∗ 6.15∗∗∗ (38.43) (98.61)
−22.27∗∗∗ 9.39∗∗∗ (57.12) (69.42)
Utilities (5)
−1.37∗∗∗ (35.00)
0.54 (34.45)
−14.52∗∗∗ 8.46∗∗∗ (34.58) (37.41)
1.18 (47.62)
Note: The table reports the average return in basis points during the five-minute interval following FOMC announcements for the 77 scheduled FOMC meetings from May 1997 to October 2006, with standard deviations given in parentheses. The table shows equally weighted averages across the individual constituents of the S&P100 index aggregated to the market level (all stocks) and sector level. Columns headed ‘Rate increase (decrease)’ show average returns following the announcement of an increase (decrease) of the Federal funds target rate. Columns headed ‘Positive (negative) surprise’ show average returns following a positive (negative) surprise in the target rate change, where the surprise is computed as the difference between the closing price of the nearby Fed funds futures contract one day before the announcement and on the announcement day itself, as given in (A.1). The superscripts ∗∗∗ , ∗∗ , and ∗ indicate significance at the 1%, 5% and 10% level, respectively.
5
Table A.2: Response of stock prices to actual target rate changes and surprises Rate Changes β
R2
Surprises & Expected β
γ
R2
Surprise, Expected & Reversal β
γ
δ
R2
All stocks (100)
−0.08 0.01 (0.31)
−4.58∗∗∗ (1.04)
0.12 0.19 (0.23)
−3.97∗∗∗ −0.06 −18.08∗∗∗ 0.28 (0.96) (0.21) (3.62)
Cons. Discr. (15)
−0.08 0.01 (0.30)
−4.53∗∗∗ (0.99)
0.11 0.21 (0.24)
−3.89∗∗∗ −0.08 −21.03∗∗∗ 0.31 (0.88) (0.20) (4.02)
Cons. Staples (11) −0.01 0.01 (0.21)
−3.44∗∗∗ (0.93)
0.13 0.15 (0.18)
−2.74∗∗∗ −0.06 −18.93∗∗∗ 0.29 (0.77) (0.14) (2.00)
Energy (6)
−0.13 0.02 (0.41)
−3.91∗∗∗ (1.23)
0.06 0.15 (0.25)
−3.33∗∗∗ −0.10 −22.11∗∗ (1.13) (0.22) (10.42)
Financials (14)
−0.08 0.01 (0.44)
−6.42∗∗∗ (1.79)
0.19 0.18 (0.37)
−5.22∗∗∗ −0.15 −33.62∗∗∗ 0.33 (1.62) (0.31) (5.24)
Health Care (10)
−0.07 0.01 (0.21)
−3.42∗∗∗ (0.71)
0.07 0.16 (0.17)
−3.02∗∗∗ −0.04 −12.34∗∗∗ 0.24 (0.68) (0.17) (4.25)
Industrials (14)
−0.12 0.02 (0.22)
−3.74∗∗∗ (0.79)
0.04 0.18 (0.15)
−3.37∗∗∗ −0.06 −11.58∗∗∗ 0.24 (0.76) (0.15) (3.32)
IT (13)
−0.02 0.00 (0.39)
−6.63∗∗∗ (1.39)
0.26 0.25 (0.27)
−5.98∗∗∗ (1.37)
0.09 −17.56∗∗∗ 0.32 (0.27) (5.50)
Materials (7)
−0.10 0.01 (0.30)
−4.42∗∗∗ (0.82)
0.09 0.23 (0.22)
−4.09∗∗∗ (0.83)
0.01 (0.22)
Telecomm. (5)
−0.20 0.02 (0.33)
−4.51∗∗∗ −0.01 0.18 (1.15) (0.28)
−3.90∗∗∗ −0.19 −21.16∗∗ (1.08) (0.26) (8.40)
0.27
Utilities (5)
−0.05 0.02 (0.18)
−2.62∗∗∗ (0.63)
−2.33∗∗∗ −0.03 −14.25∗∗ (0.61) (0.15) (6.77)
0.18
0.06 0.13 (0.15)
1.36 (8.64)
0.26
0.28
Note: The table shows results from regressions of the stock returns (in basis points) during the fiveminute interval following FOMC announcements on Federal funds rate changes (equation (A.2)), on surprises and expected rate changes (equation (A.3)), and on surprises and expected rate changes allowing for different effects of reversal decisions (equation (A.4)). The models are estimated for individual stock returns for the constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks.
6
Table A.3: Response of individual stock prices to actual target rate changes and surprises
Rate Changes 2
βi
R
0.20 (0.85) 0.05 (0.20) −0.30 (0.32) −0.08 (0.31) 0.05 (0.34) 0.09 (0.27) 0.02 (0.47) −0.31 (0.45) −0.39 (0.29) −0.16 (0.28) −0.60∗∗ (0.30) −0.22 (0.28) 0.25 (0.32) −0.03 (0.39) 0.18 (0.29)
0.00
Surprises & Expected βi
γi
R
2
Surprise, Expected & Reversal βi
γi
δi
R2
Cons. Discr. AOL BDK CCU DIS EK F GM HD HET LTD MAY MCD OMX RSH TOY
0.00 0.02 0.00 0.00 0.00 0.00 0.01 0.04 0.00 0.10 0.01 0.02 0.00 0.01
−6.49∗∗ 0.55 (2.56) (0.83) ∗∗∗ −3.51 0.20 (0.96) (0.18) −3.98∗∗∗ −0.15 (1.44) (0.24) −5.70∗∗∗ 0.16 (1.37) (0.22) −5.14∗∗∗ 0.27 (1.12) (0.27) ∗∗∗ −4.55 0.29 (0.93) (0.22) −5.06∗∗∗ 0.23 (1.37) (0.41) −6.64∗∗∗ −0.04 (1.75) (0.38) −3.14∗∗∗ −0.27 (1.12) (0.26) ∗ −2.19 −0.07 (1.29) (0.32) −5.55∗∗∗ −0.39∗ (0.94) (0.21) −4.23∗∗∗ −0.05 (1.13) (0.21) −4.11∗∗∗ 0.43∗ (1.06) (0.24) −3.81∗∗ 0.14 (1.68) (0.33) −3.81∗∗∗ 0.36 (1.05) (0.23)
0.12 0.23 0.14 0.30 0.26 0.25 0.18 0.23 0.12 0.04 0.42 0.22 0.30 0.16 0.20
−4.61∗∗ −0.14 (2.20) (0.50) −3.01∗∗∗ 0.06 (0.91) (0.16) −3.60∗∗ −0.25 (1.43) (0.24) −4.90∗∗∗ −0.06 (1.26) (0.17) −4.48∗∗∗ 0.09 (1.05) (0.26) −3.85∗∗∗ 0.10 (0.80) (0.19) −4.33∗∗∗ 0.04 (1.28) (0.41) −6.01∗∗∗ −0.21 (1.74) (0.39) −2.51∗∗ −0.44∗ (1.03) (0.25) −1.18 −0.34 (1.07) (0.28) −5.11∗∗∗ −0.52∗∗ (0.91) (0.21) −3.58∗∗∗ −0.22 (1.09) (0.18) −4.30∗∗∗ 0.48∗ (1.13) (0.26) −3.74∗∗ 0.09 (1.67) (0.33) −3.15∗∗∗ 0.16 (0.93) (0.19)
−53.30∗ (29.09) −13.76∗∗∗ (4.01) −10.11∗∗∗ (3.22) −21.70∗∗∗ (4.21) −17.84∗∗∗ (2.40) −19.10∗∗∗ (5.70) −19.81∗∗∗ (4.31) −17.34∗∗∗ (4.12) −16.96∗∗∗ (3.15) −27.38∗∗∗ (2.45) −11.81∗∗∗ (3.33) −17.80∗∗∗ (3.35) 4.93∗ (2.95) −55.38∗∗∗ (7.56) −18.14∗∗∗ (3.25)
0.35 0.34 0.17 0.43 0.36 0.38 0.26 0.29 0.22 0.24 0.48 0.34 0.31 0.19 0.33
Cons. Staples AVP BUD CL CPB G
0.03 (0.36) −0.04 (0.21) −0.14 (0.31) −0.01 (0.23) 0.04 (0.30)
0.00 0.00 0.00 0.00 0.00
−4.33∗∗ 0.21 (2.18) (0.32) −2.75∗∗∗ 0.07 (0.81) (0.18) −2.03∗ −0.06 (1.18) (0.34) −4.46∗∗∗ 0.18 (1.16) (0.17) ∗∗∗ −4.22 0.23 (1.22) (0.28)
7
0.12 0.12 0.04 0.25 0.19
−3.61∗ 0.02 −19.63∗∗∗ 0.20 (2.07) (0.30) (4.72) −2.22∗∗∗ −0.07 −14.50∗∗ 0.23 (0.71) (0.15) (6.78) −1.41 −0.23 −16.80∗∗∗ 0.13 (1.14) (0.34) (2.85) −4.02∗∗∗ 0.06 −12.21∗∗∗ 0.31 (1.15) (0.16) (1.71) ∗∗∗ −3.09 −0.10 −30.52∗∗∗ 0.50 (0.71) (0.17) (7.58) continued on next page
continued from previous page Rate Changes
HNZ KO MO PEP SLE WMT
2
βi
R
−0.04 (0.18) 0.08 (0.28) −0.10 (0.19) −0.02 (0.20) −0.32 (0.21) 0.39 (0.40)
0.00 0.00 0.00 0.00 0.04 0.02
Surprises & Expected βi
γi
−3.05∗∗∗ 0.09 (0.62) (0.13) −4.62∗∗∗ 0.28 (1.24) (0.22) −2.70∗∗∗ 0.01 (1.03) (0.17) −2.91∗∗∗ 0.10 (1.07) (0.18) −2.27∗ −0.24 (1.21) (0.22) −4.48∗∗∗ 0.59 (1.59) (0.38)
R
2
0.23 0.23 0.11 0.14 0.09 0.16
Surprise, Expected & Reversal βi
γi
δi
−2.71∗∗∗ 0.00 (0.57) (0.12) −3.55∗∗∗ −0.01 (0.98) (0.13) −2.31∗∗ −0.10 (1.03) (0.16) −2.11∗∗ −0.11 (0.88) (0.11) −1.76 −0.38∗ (1.16) (0.20) −3.40∗∗ 0.30 (1.37) (0.37)
−9.28∗∗∗ (1.10) −29.12∗∗∗ (3.30) −10.62∗∗∗ (3.46) −21.94∗∗∗ (3.30) −14.07∗∗∗ (2.43) −29.51∗∗∗ (6.37)
−1.73 0.20 (1.24) (0.17) −7.64∗∗∗ −0.36 (2.05) (0.52) −2.13 0.03 (1.31) (0.21) −1.11 −0.15 (0.80) (0.16) −5.24∗∗∗ −0.43∗ (1.68) (0.25) −2.14∗∗∗ 0.11 (0.71) (0.20)
−22.82∗∗∗ (1.96) −27.85∗∗∗ (8.18) −18.14∗∗∗ (2.90) −19.22∗∗∗ (2.25) −32.09∗∗∗ (9.53) −12.53∗∗∗ (4.41)
R2 0.30 0.51 0.16 0.38 0.19 0.33
Energy BHI EP HAL SLB WMB XOM
0.30 (0.26) −0.80 (0.84) 0.08 (0.26) −0.03 (0.18) −0.37 (0.45) 0.03 (0.21)
0.02 0.05 0.00 0.00 0.02 0.00
−2.57∗ 0.42∗ (1.33) (0.23) −7.71∗∗∗ −0.31 (2.08) (0.52) −2.80∗∗ 0.21 (1.39) (0.23) −1.82∗ 0.04 (0.95) (0.20) −6.41∗∗∗ −0.11 (1.89) (0.32) −2.15∗∗∗ 0.12 (0.71) (0.19)
0.11 0.26 0.08 0.06 0.22 0.15
0.29 0.27 0.17 0.26 0.41 0.15
Financials AIG ALL AXP BAC C GS HIG JPM LEH
−0.10 (0.24) 0.01 (0.31) 0.33 (0.57) −0.45 (0.62) 0.02 (0.66) −0.26 (0.43) −0.10 (0.29) −0.53 (0.41) 0.25 (0.60)
0.00 0.00 0.01 0.01 0.00 0.01 0.00 0.03 0.00
−3.18∗∗ 0.03 (1.38) (0.19) −4.04∗∗∗ 0.18 (1.28) (0.31) −6.73∗∗∗ 0.63 (2.15) (0.49) ∗∗∗ −6.34 −0.20 (2.45) (0.64) −7.74∗∗∗ 0.35 (2.94) (0.58) −7.57∗∗∗ 0.05 (1.96) (0.30) −4.06∗∗∗ 0.06 (1.39) (0.21) ∗∗∗ −6.72 −0.27 (2.21) (0.35) −8.66∗∗∗ 0.63 (2.61) (0.55)
8
0.08 0.21 0.22 0.12 0.13 0.32 0.20 0.20 0.21
−2.58∗ −0.13 −16.30∗∗∗ 0.15 (1.37) (0.17) (4.71) −3.55∗∗∗ 0.05 −13.29∗∗∗ 0.28 (1.23) (0.31) (3.11) −5.83∗∗∗ 0.38 −24.69∗∗ 0.30 (2.17) (0.51) (12.57) −4.84∗∗ −0.60 −40.90∗∗∗ 0.28 (2.30) (0.61) (5.58) −5.82∗∗ −0.17 −52.35 0.33 (2.65) (0.43) (34.68) −7.15∗∗∗ −0.06 −29.25∗∗∗ 0.38 (1.95) (0.29) (3.26) −3.30∗∗ −0.14 −20.81∗∗∗ 0.37 (1.31) (0.17) (2.22) ∗∗∗ ∗ −5.73 −0.54 −26.86∗∗∗ 0.31 (2.16) (0.31) (3.66) −6.40∗∗∗ 0.02 −61.44∗∗∗ 0.51 (2.14) (0.38) (3.44) continued on next page
continued from previous page Rate Changes
MER MWD ONE USB WFC
2
βi
R
−0.02 (0.59) −0.29 (0.60) −0.17 (0.72) 0.10 (0.50) 0.08 (0.30)
0.00 0.01 0.00 0.00 0.00
Surprises & Expected βi −8.70∗∗∗ (2.36) −8.68∗∗∗ (2.50) −7.64∗∗∗ (2.81) −5.69∗∗ (2.27) −4.16∗∗∗ (1.39)
2
γi
R
0.35 (0.52) 0.08 (0.46) 0.20 (0.71) 0.34 (0.43) 0.26 (0.25)
0.25 0.22 0.15 0.14 0.13
Surprise, Expected & Reversal βi
γi
δi
−7.29∗∗∗ −0.03 (2.16) (0.48) −7.19∗∗∗ −0.31 (2.34) (0.40) −5.51∗∗ −0.62 (2.31) (0.50) −4.38∗∗ 0.01 (2.11) (0.41) −3.54∗∗ 0.10 (1.38) (0.24)
−38.30∗∗∗ (4.45) −36.77∗∗∗ (8.89) −60.05∗∗∗ (2.89) −32.85∗∗∗ (6.89) −16.83∗∗∗ (4.53)
−3.79∗∗∗ −0.11 (1.40) (0.28) −2.28∗∗∗ 0.00 (0.77) (0.16) −2.17 0.14 (1.32) (0.24) −3.94∗∗∗ −0.08 (0.98) (0.17) −1.52∗∗∗ −0.16 (0.51) (0.18) −2.36∗∗ −0.09 (0.94) (0.15) −3.40∗∗∗ −0.15 (1.03) (0.22) −6.16∗∗∗ 0.11 (1.94) (0.51) −1.80∗∗ 0.00 (0.91) (0.13) −2.74∗∗ −0.04 (1.07) (0.24)
−15.52∗∗∗ (4.28) −7.30∗∗∗ (2.00) −18.52∗∗∗ (3.45) −10.18∗∗∗ (1.47) −14.60∗∗ (7.20) −16.21∗∗∗ (4.64) −5.97∗ (3.23) −0.75 (5.20) −16.12∗∗∗ (2.91) −18.19∗∗∗ (2.38)
R2 0.40 0.35 0.46 0.29 0.20
Health Care AMGN BAX BMY CI HCA JNJ MDT MEDI MRK PFE
−0.13 (0.32) −0.03 (0.18) 0.19 (0.27) −0.16 (0.26) −0.21 (0.18) −0.05 (0.20) −0.23 (0.24) −0.13 (0.56) 0.06 (0.16) −0.01 (0.27)
0.00 0.00 0.01 0.01 0.03 0.00 0.02 0.00 0.00 0.00
−4.36∗∗∗ 0.05 (1.43) (0.28) −2.55∗∗∗ 0.07 (0.79) (0.16) −2.85∗∗ 0.32 (1.33) (0.25) −4.31∗∗∗ 0.02 (0.97) (0.17) −1.54∗∗∗ −0.15 (0.51) (0.17) −2.96∗∗∗ 0.07 (0.96) (0.17) −3.62∗∗∗ −0.09 (0.99) (0.21) −6.18∗∗∗ 0.12 (1.84) (0.47) −2.39∗∗ 0.16 (0.99) (0.16) −3.41∗∗∗ 0.14 (1.14) (0.25)
0.16 0.14 0.14 0.30 0.08 0.17 0.15 0.18 0.12 0.17
0.23 0.18 0.29 0.35 0.08 0.34 0.17 0.18 0.28 0.32
Industrials BA BNI DAL FDX GD GE
0.01 (0.25) 0.11 (0.29) −0.82 (0.58) −0.21 (0.21) −0.10 (0.16) −0.06 (0.34)
0.00 0.00 0.06 0.02 0.01 0.00
−3.58∗∗∗ 0.16 (0.98) (0.21) −2.29∗ 0.21 (1.18) (0.28) −8.45∗∗∗ −0.48 (2.59) (0.36) −3.43∗∗∗ −0.08 (0.85) (0.21) −1.98∗∗∗ −0.02 (0.58) (0.14) −6.12∗∗∗ 0.20 (1.38) (0.24)
9
0.17 0.07 0.33 0.20 0.14 0.31
−2.87∗∗∗ −0.03 −19.33∗∗∗ 0.33 (0.80) (0.19) (2.48) −1.59 0.02 −19.11∗∗∗ 0.20 (1.11) (0.27) (4.61) −8.14∗∗∗ −0.57 −8.35∗ 0.34 (2.65) (0.37) (4.47) −2.89∗∗∗ −0.22 −14.69∗∗ 0.32 (0.77) (0.19) (7.04) ∗∗∗ −1.59 −0.13 −10.53∗∗∗ 0.26 (0.50) (0.12) (1.00) −5.05∗∗∗ −0.09 −29.14∗∗∗ 0.54 (1.16) (0.17) (4.80) continued on next page
continued from previous page Rate Changes
HON MMM NSC ROK RTN TYC UTX VIAB
2
βi
R
0.20 (0.26) −0.24 (0.21) −0.08 (0.43) −0.25 (0.24) −0.20 (0.16) −0.21 (0.29) −0.03 (0.26) 0.19 (0.39)
0.01 0.02 0.00 0.02 0.04 0.01 0.00 0.01
Surprises & Expected βi
γi
−4.30∗∗∗ 0.39∗∗ (1.03) (0.19) −3.16∗∗∗ −0.12 (0.99) (0.19) −4.79∗∗∗ 0.12 (1.34) (0.39) −1.50∗ −0.19 (0.81) (0.24) −1.73∗∗∗ −0.07 (0.66) (0.16) −3.78∗∗∗ −0.06 (1.42) (0.20) ∗∗ −2.34 0.06 (1.14) (0.23) −4.96∗∗∗ 0.41 (1.43) (0.30)
R
2
0.24 0.16 0.17 0.03 0.16 0.15 0.04 0.33
Surprise, Expected & Reversal βi
γi
−4.25∗∗∗ 0.38∗ (1.08) (0.20) −2.91∗∗∗ −0.19 (1.01) (0.19) −4.43∗∗∗ 0.02 (1.36) (0.42) −1.30 −0.25 (0.81) (0.25) −1.71∗∗∗ −0.09 (0.65) (0.16) −3.64∗∗ −0.10 (1.48) (0.21) −2.00∗ −0.03 (1.16) (0.25) −4.77∗∗∗ 0.35 (1.47) (0.31)
δi −1.30 (3.29) −6.86∗∗∗ (1.49) −9.75∗∗∗ (3.74) −5.23∗∗∗ (1.85) −11.40∗∗ (4.93) −3.66 (3.03) −9.31∗ (5.45) −13.49∗∗∗ (3.13)
R2 0.24 0.18 0.19 0.04 0.17 0.15 0.06 0.35
IT CSC CSCO EMC HPQ IBM INTC LU MSFT NSM ORCL TXN UIS XRX
0.01 (0.25) −0.16 (0.62) 0.06 (0.59) −0.10 (0.59) −0.07 (0.27) −0.10 (0.53) −0.14 (0.45) 0.03 (0.31) 0.06 (0.43) 0.20 (0.57) −0.37 (0.46) 0.47 (0.44) −0.17 (0.29)
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.03 0.01
−3.53∗∗∗ 0.16 0.22 (0.84) (0.19) ∗∗∗ −8.70 0.20 0.26 (2.07) (0.53) −8.58∗∗∗ 0.42 0.29 (2.09) (0.42) −8.08∗∗∗ 0.24 0.36 (2.26) (0.37) −3.99∗∗∗ 0.10 0.15 (1.23) (0.26) −8.03∗∗∗ 0.24 0.29 (1.96) (0.38) −6.91∗∗∗ 0.15 0.21 (1.82) (0.39) −4.13∗∗∗ 0.21 0.17 (1.12) (0.25) −6.57∗∗∗ 0.34 0.21 (1.81) (0.36) −8.33∗∗∗ 0.56 0.21 (2.67) (0.46) −6.63∗∗∗ −0.10 0.19 (2.31) (0.38) −7.52∗∗∗ 0.81∗∗∗ 0.40 (1.60) (0.23) −5.17∗∗∗ 0.05 0.25 (1.22) (0.23)
10
−3.07∗∗∗ 0.04 −12.44∗∗∗ 0.30 (0.82) (0.19) (1.64) ∗∗∗ −7.67 −0.07 −28.04∗∗ 0.35 (2.05) (0.54) (11.29) −7.69∗∗∗ 0.18 −24.46∗∗∗ 0.37 (2.09) (0.43) (3.77) −7.78∗∗∗ 0.16 −8.14 0.38 (2.32) (0.40) (6.02) −3.11∗∗∗ −0.14 −24.21∗∗∗ 0.33 (1.12) (0.22) (7.29) ∗∗∗ −7.32 0.05 −19.52 0.35 (1.97) (0.38) (13.07) −6.01∗∗∗ −0.09 −24.55∗∗∗ 0.29 (1.72) (0.39) (7.62) −3.39∗∗∗ 0.01 −20.09∗∗∗ 0.30 (1.05) (0.23) (7.65) −5.59∗∗∗ 0.08 −26.73∗∗∗ 0.32 (1.75) (0.36) (4.29) ∗∗∗ −8.11 0.51 −5.91 0.21 (2.79) (0.50) (8.45) −5.90∗∗ −0.30 −19.99∗∗∗ 0.25 (2.37) (0.37) (5.59) −7.45∗∗∗ 0.79∗∗∗ −1.90 0.41 (1.66) (0.24) (2.96) −4.71∗∗∗ −0.08 −12.29∗∗∗ 0.30 (1.25) (0.24) (3.17) continued on next page
continued from previous page Rate Changes 2
βi
R
−0.01 (0.35) −0.26 (0.34) 0.22 (0.39) −0.17 (0.26) −0.11 (0.43) −0.50 (0.40) 0.15 (0.31)
0.00
Surprises & Expected βi
γi
R
2
Surprise, Expected & Reversal βi
γi
δi
R2
Materials AA ATI BCC DD DOW IP WY
0.01 0.02 0.01 0.00 0.04 0.00
−5.65∗∗∗ 0.23 (1.24) (0.26) −3.21∗∗ −0.15 (1.59) (0.32) ∗∗∗ −3.64 0.41 (0.97) (0.29) −4.48∗∗∗ 0.02 (1.26) (0.21) −3.48∗∗ 0.07 (1.39) (0.39) −5.68∗∗∗ −0.29 (1.25) (0.42) ∗∗∗ −4.79 0.36∗ (1.27) (0.22)
0.30 0.07 0.33 0.25 0.18 0.23 0.24
−5.38∗∗∗ 0.16 (1.27) (0.27) −3.28∗∗ −0.09 (1.61) (0.32) −3.80∗∗∗ 0.46 (1.03) (0.31) −3.93∗∗∗ −0.13 (1.23) (0.20) −3.28∗∗ −0.01 (1.47) (0.42) −4.89∗∗∗ −0.50 (1.25) (0.40) −4.05∗∗∗ 0.16 (1.21) (0.19)
−7.35 (5.54) 74.62∗∗∗ (12.11) 4.25 (3.06) −14.75∗∗∗ (3.02) −5.61 (4.25) −21.55∗ (11.12) −20.11∗∗∗ (1.76)
−3.88 −0.74 (2.41) (0.77) −2.79∗∗ −0.23 (1.10) (0.24) −5.56∗∗∗ −0.28 (1.63) (0.20) −3.36∗∗ 0.35 (1.32) (0.32) −3.89∗∗ −0.03 (1.74) (0.19)
−17.51∗∗∗ (5.89) −21.14∗∗∗ (1.84) −29.36∗∗∗ (2.30) −14.62∗∗ (7.31) −23.16∗∗∗ (6.23)
−3.80∗∗∗ −0.22 (1.15) (0.26) −2.67∗∗ 0.19 (1.30) (0.26) −1.48∗∗ −0.30∗ (0.75) (0.16) −2.11∗∗∗ 0.04 (0.55) (0.21) −1.57∗∗ 0.15 (0.66) (0.11)
−15.21∗∗∗ (2.07) −5.05 (3.57) −9.40∗∗∗ (1.78) −32.04∗∗∗ (6.62) −9.56∗ (4.90)
0.31 0.11 0.35 0.33 0.19 0.34 0.37
Telecomm. NXTL S SBC T VZ
−0.71 (0.76) −0.17 (0.28) −0.25 (0.39) 0.32 (0.36) −0.17 (0.31)
0.03 0.01 0.01 0.02 0.01
−4.52∗ −0.55 (2.45) (0.75) ∗∗∗ −3.56 −0.02 (1.26) (0.27) −6.65∗∗∗ 0.03 (1.77) (0.28) −3.90∗∗∗ 0.50 (1.34) (0.31) −3.92∗∗ 0.00 (1.74) (0.18)
0.07 0.12 0.32 0.17 0.21
0.10 0.26 0.52 0.23 0.22
Utilities AEP AES ETR EXC SO
−0.25 (0.32) 0.11 (0.26) −0.27 (0.18) −0.02 (0.22) 0.16 (0.14)
0.02 0.00 0.04 0.00 0.01
−4.35∗∗∗ −0.07 (1.15) (0.26) −2.86∗∗ 0.24 (1.24) (0.24) −1.83∗∗ −0.21 (0.80) (0.17) −2.15∗∗∗ 0.07 (0.55) (0.21) −1.92∗∗∗ 0.25∗∗ (0.68) (0.12)
0.20 0.10 0.11 0.12 0.12
0.29 0.11 0.18 0.14 0.20
Note: The table shows the results from regressions of the five-minute stock returns on Federal funds rate changes (equation (A.2)), on surprises and expected rate changes (equation (A.3)), and on surprises and expected rate changes allowing for different effects of ‘reversal’ decisions (equation (A.4)). The models are estimated using individual stock returns following the 77 scheduled FOMC meetings between May 1997 and October 2006. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks.
11
Figure A.2: Estimate of surprise coefficient for individual stock returns 20 18 16
Number of stocks
14 12 10 8 6 4 2 0 -8.3
-7.6
-6.9
-6.1
-5.4
-4.7
-4.0
-3.3
-2.5
-1.8
Average beta in bucket
Note: The figure shows a histogram of the estimates of the coefficient of the surprise target rate change in (A.4), estimated using individual stock returns during the five-minute interval immediately following the FOMC announcement.
12
13
0.02 (4.72)
0.02 (3.95)
0.96 (5.08)
−2.36 (6.26)
−0.70 (4.60)
−1.36 (4.39)
−0.86 (5.41)
−2.60 (5.29)
3.13 (6.44)
4.48 (4.67)
Cons. Discr. (15)
Cons. Staples (11)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
−0.73 (1.24) −1.63 (2.59) −1.50 (1.11) −0.99 (1.02)
−0.13 (1.71) −0.53 (1.20)
−5.10∗∗∗ −10.61 (1.17) (8.11) −8.83 (10.04) −7.55 (6.88)
−8.20 (8.81)
−4.11∗∗∗ (0.72) −4.65∗∗∗ −13.96∗∗ (0.93) (7.06) −9.96 (8.86)
−9.07∗∗∗ (1.77)
−8.36∗∗∗ (1.08) −5.81∗∗∗ (0.92) −6.86∗∗∗ −21.66∗∗ (1.13) (10.70) −2.98∗∗∗ −15.73∗∗ (0.92) (7.75)
−11.07 (9.07) −23.13∗∗ (11.11) −11.24 (9.78) −26.26∗∗ (12.02) −10.60 (8.83)
−8.30 (7.74)
−22.66 (14.39)
−11.87 (9.88)
−1.96 (1.91)
−4.55 (2.96)
−1.08 (0.98)
−3.83∗∗∗ −10.73∗ (1.08) (6.42)
−10.47 (8.01)
−12.17 (9.81)
−14.88 (9.47) −0.98 (1.34)
β2
−5.46∗∗∗ −15.61∗∗ (0.99) (7.26)
α2 −1.59 (1.45)
β1 −5.86∗∗∗ −11.84∗ (0.96) (6.99)
α1
R2
0.29
0.30
−14.85∗ (7.76)
0.20
−25.46∗∗∗ 0.31 (9.14)
1.67 (9.25)
−19.49∗∗∗ 0.34 (5.63)
−11.68∗∗∗ 0.27 (3.96)
−12.52∗∗∗ 0.27 (4.09)
−35.10∗∗∗ 0.36 (4.71)
−22.36∗∗ (10.87)
−19.22∗∗∗ 0.32 (1.81)
−20.90∗∗∗ 0.33 (4.18)
−18.82∗∗∗ 0.31 (4.21)
δ
0.60
0.73
0.78
0.27
0.77
0.93
0.36
0.91
0.98
0.74
0.76
α1 = α2
0.10
0.00
0.07
0.23
0.01
0.05
0.02
0.01
0.06
0.01
0.01
β1 = β2
Wald tests
0.23
0.00
0.16
0.25
0.03
0.15
0.04
0.04
0.17
0.03
0.05
α1 = α2 β1 = β2
Note: The table shows the results from the regression of stock returns (in basis points) during the five-minute interval following FOMC announcements on surprises in Federal funds rate changes allowing for different effects of positive and negative surprises, and for different effects of ‘reversal’ decisions (equation (A.5)). The model is estimated for individual stock returns for the constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. Negative and positive surprises occur in 26 and 28 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
−0.44 (4.45)
All stocks (100)
α0
Table A.4: Asymmetric response of returns to positive and negative surprises
Table A.5: Asymmetric response of individual stock prices to positive and negative surprises Wald tests α0i
α1i
β1i
α2i
β2i
δi
R2
α1i = α2i β1i = β2i
α1i = α2i β1i = β2i
Cons. Discr. AOL BDK CCU DIS EK F GM HD HET LTD MAY MCD OMX RSH TOY
−1.70 (11.49) −6.28 (5.01) 0.04 (5.86) 1.64 (5.78) 1.47 (5.58) −1.66 (5.07) 5.73 (6.09) 1.81 (5.25) −4.05 (4.64) −5.20 (7.56) −3.04 (3.28) 1.38 (3.89) 1.21 (4.54) 1.61 (8.78) 7.30 (7.77)
−35.93 −10.28∗∗∗−39.53∗∗∗ 4.49 (29.08) (2.65) (14.98) (3.51) 2.80 −3.30∗∗∗ 2.47 −2.41 (9.05) (0.85) (8.04) (2.74) −4.19 −5.30∗∗∗ −4.20 −1.05 (11.46) (1.79) (7.90) (1.46) −23.99∗∗ −7.07∗∗∗−17.23∗∗ −2.81∗ (10.28) (1.85) (8.54) (1.54) ∗∗∗ −8.41 −5.14 −19.31∗ −1.64 (10.80) (0.97) (11.11) (2.51) −10.84 −4.86∗∗∗−20.17∗∗ −0.71 (11.91) (1.12) (8.25) (0.99) −32.08∗∗ −8.25∗∗∗−11.98 −1.68 (15.02) (1.44) (9.54) (1.36) −11.97 −6.88∗∗∗−14.91 −4.36∗ (12.78) (2.13) (10.44) (2.54) −8.84 −4.94∗∗∗−10.84 1.41 (11.09) (1.33) (8.21) (1.52) −1.14 −1.53 −18.80∗ 2.13∗ (12.64) (1.22) (11.05) (1.19) −14.15 −7.18∗∗∗−14.70 −2.07 (9.12) (1.19) (9.18) (1.44) −15.04 −6.21∗∗∗−15.85∗ 0.53 (10.23) (1.51) (8.20) (1.17) ∗∗∗ −6.21 −3.96 −9.93 −3.89 (8.75) (0.91) (8.26) (2.45) 5.08 −2.53 −23.08∗∗ −1.31 (15.62) (2.16) (11.55) (2.16) −17.70 −4.50∗∗∗−16.07 −1.40 (12.41) (1.14) (10.98) (2.43)
−55.42∗ 0.40 (28.93) −14.42∗∗∗0.35 (4.15) −9.64∗∗∗0.17 (2.76) −22.56∗∗∗0.47 (3.83) −18.86∗∗∗0.38 (1.83) −20.38∗∗∗0.41 (5.50) −22.38∗∗∗0.32 (4.12) −16.43∗∗∗0.29 (3.54) −15.72∗∗∗0.23 (2.45) −25.42∗∗∗0.25 (1.35) −9.72∗∗∗0.45 (3.61) −18.04∗∗∗0.40 (2.80) 2.00 0.25 (2.24) −46.67∗∗∗0.25 (12.56) −19.85∗∗∗0.35 (3.13)
−5.69∗ −23.92∗∗∗ 3.28 (3.26) (7.47) (2.27) −3.06∗∗∗ 0.51 −0.72 (1.15) (7.88) (1.41) −2.90∗∗∗−18.17∗ 0.75 (1.12) (9.35) (1.00) −5.57∗∗∗−25.17∗∗∗−1.11 (1.80) (9.05) (2.22) ∗∗∗ −5.10 −9.77 −2.28∗ (1.16) (9.97) (1.18)
−21.30∗∗∗0.27 (5.53) −14.66∗∗ 0.25 (6.38) −16.16∗∗∗0.14 (1.44) −13.47∗∗∗0.37 (1.38) −31.01∗∗∗0.53 (7.19)
0.90
0.00
0.00
0.97
0.76
0.95
1.00
0.06
0.17
0.52
0.08
0.18
0.41
0.20
0.38
0.46
0.01
0.01
0.20
0.00
0.00
0.84
0.44
0.75
0.87
0.00
0.01
0.18
0.03
0.05
0.96
0.01
0.02
0.95
0.00
0.00
0.71
0.98
0.94
0.06
0.69
0.16
0.90
0.25
0.51
0.09
0.02
0.01
0.93
0.20
0.44
0.97
0.01
0.05
0.78
0.12
0.29
0.28
0.09
0.12
Cons. Staples AVP BUD CL CPB G
−2.59 −2.70 (4.96) (12.07) −5.69 1.48 (5.05) (10.73) 7.31 −17.74 (5.51) (11.07) 4.98 −21.64∗ (4.88) (11.05) 4.07 −22.98∗∗ (5.22) (10.22)
continued on next page
14
continued from previous page Wald tests α0i HNZ KO MO PEP SLE WMT
α1i
β1i
α2i
β2i
δi
R
2
1.87 −3.72 (3.39) (7.35) −6.34 −3.40 (4.38) (9.06) −1.15 −5.03 (5.67) (9.50) 3.07 −12.35 (3.87) (8.73) −7.47 −4.76 (5.38) (9.14) 2.19 −22.28 (5.65) (15.35)
−2.68∗∗∗−16.00∗∗∗−0.73 (0.70) (6.07) (1.04) −4.44∗∗∗ −1.29 −2.50∗ (1.19) (7.40) (1.45) ∗∗ −3.23 −2.26 −1.41 (1.54) (9.60) (1.09) −3.76∗∗∗−12.48∗ 0.38 (1.24) (6.39) (0.80) −2.02 0.77 −2.51 (1.55) (9.29) (2.46) −3.68∗∗ −10.21 −5.02∗ (1.63) (9.43) (3.03)
−9.25∗∗∗0.33 (1.01) −29.66∗∗∗0.51 (3.14) −10.57∗∗∗0.17 (3.42) −22.22∗∗∗0.42 (3.44) −11.70∗∗∗0.15 (2.24) −31.37∗∗∗0.34 (4.82)
−0.27 −12.90 (7.15) (11.65) 6.82 −9.88 (6.37) (12.89) −4.81 −9.62 (6.98) (11.91) −4.71 2.79 (3.78) (9.09) 6.33 −32.09∗∗ (6.26) (13.89) 2.43 −9.51 (3.97) (8.47)
−3.35∗∗ −8.60 0.15 −25.12∗∗∗0.30 (1.58) (10.32) (1.61) (1.79) −9.64∗∗∗−39.01∗∗ 0.87 −18.90∗ 0.36 (0.68) (17.16) (1.56) (10.59) −3.60∗∗ −14.06 0.91 −19.26∗∗∗0.20 (1.46) (10.68) (1.52) (2.85) −1.54 −8.13 1.34 −18.61∗∗∗0.27 (1.10) (6.82) (0.86) (1.62) −9.86∗∗∗ 9.06 −5.24∗∗ −32.01∗∗∗0.45 (2.42) (16.55) (2.67) (9.10) −2.62∗∗∗ −2.89 −2.42∗∗ −20.26∗∗∗0.16 (0.97) (7.45) (1.19) (6.89)
α1i = α2i β1i = β2i
α1i = α2i β1i = β2i
0.14
0.12
0.09
0.83
0.30
0.58
0.80
0.33
0.59
0.99
0.00
0.02
0.60
0.87
0.87
0.46
0.70
0.67
0.72
0.12
0.29
0.13
0.00
0.00
0.73
0.03
0.10
0.28
0.04
0.05
0.04
0.20
0.03
0.50
0.90
0.79
0.99
0.01
0.03
0.77
0.12
0.28
0.67
0.34
0.61
0.30
0.03
0.06
0.48
0.00
0.00
0.99
0.49
0.77
0.93
0.06
0.15
0.39
0.00
0.00
0.30
0.27
0.33
Energy BHI EP HAL SLB WMB XOM Financials AIG ALL AXP BAC C GS HIG JPM LEH
−2.78 (8.33) −3.05 (4.06) −2.60 (7.35) 0.42 (9.72) −5.28 (6.69) 8.61 (6.88) 2.74 (3.19) −7.21 (5.34) 1.54 (8.32)
−14.28 −4.87∗∗∗−14.45 0.93 (13.40) (1.54) (11.34) (1.62) −8.48 −5.42∗∗ −4.91 −1.18 (10.89) (2.36) (7.69) (1.42) ∗∗∗ −18.32 −7.95 −11.10 −3.58 (16.67) (2.15) (10.43) (3.99) −23.49 −9.36∗∗∗ −5.22 −1.19 (16.71) (2.58) (14.79) (2.84) −35.55∗ −13.71∗∗∗−20.16∗ 3.87 (21.55) (3.00) (10.45) (3.83) −17.46 −8.73∗∗∗−17.15 −4.92 (15.59) (1.73) (12.63) (5.27) −15.99 −5.12∗∗∗−16.99∗∗∗−0.43 (11.16) (1.92) (6.27) (1.64) −28.44∗ −12.28∗∗∗−12.85 1.63 (14.52) (1.74) (13.06) (4.10) −28.27 −10.05∗∗∗ −6.61 −4.42 (19.66) (2.70) (13.64) (4.35)
−16.90∗∗∗0.18 (4.36) −14.83∗∗∗0.30 (2.24) −28.50∗∗ 0.30 (12.31) −39.82∗∗∗0.28 (3.59) −56.40∗ 0.41 (33.52) −29.92∗∗∗0.40 (3.45) −20.98∗∗∗0.41 (2.16) −27.59∗∗∗0.39 (4.07) −63.75∗∗∗0.53 (3.31)
continued on next page
15
continued from previous page Wald tests α0i MER MWD ONE USB WFC
α1i
β1i
α2i
β2i
δi
R
2
−20.32 −10.89∗∗∗ −3.94 (16.47) (2.24) (11.60) −26.00 −11.79∗∗∗ −1.22 (20.04) (3.38) (12.75) ∗∗ −42.17 −12.17∗∗∗ −2.11 (20.53) (2.98) (16.14) −19.97 −7.97∗∗∗−10.04 (15.71) (2.43) (8.32) −18.57 −6.72∗∗∗ 3.09 (15.75) (1.69) (9.73)
−4.45 (3.65) −4.60 (3.23) −1.62 (2.24) −0.73 (2.66) −2.18 (2.08)
−40.38∗∗∗0.42 (3.55) −37.41∗∗∗0.38 (8.71) −60.52∗∗∗0.50 (2.56) −35.01∗∗∗0.32 (6.29) −19.44∗∗∗0.23 (4.40)
−4.20∗ −10.90 (2.28) (9.14) −1.25 −9.50 (0.96) (8.30) −4.24∗∗ −9.60 (1.73) (7.51) ∗∗∗ −5.24 −3.13 (1.07) (8.97) −2.54∗∗∗ −7.78 (0.68) (12.39) −3.56∗∗∗ 4.58 (1.35) (5.45) −5.45∗∗∗ −5.51 (1.53) (9.14) ∗∗∗ −8.54 −10.71 (2.55) (14.97) −1.54 −8.70 (1.50) (6.57) −4.49∗∗∗−14.24∗ (1.12) (8.02)
−3.80 (2.73) −1.82 (1.74) 0.08 (1.72) −3.34 (2.37) 0.78 (1.06) −0.51 (0.94) −1.53 (1.19) −4.72 (3.38) 0.07 (0.85) −0.19 (1.66)
−14.93∗∗∗0.24 (4.48) −6.65∗∗∗0.20 (1.94) −20.69∗∗∗0.32 (2.99) −10.40∗∗∗0.37 (1.46) −11.86∗∗ 0.11 (5.94) −16.54∗∗∗0.38 (3.91) −6.26∗∗ 0.19 (2.70) −2.85 0.20 (4.22) −16.05∗∗∗0.30 (2.44) −18.96∗∗∗0.35 (1.78)
−4.71 −7.33 −4.70∗∗∗−15.65∗ 1.40 (5.78) (11.00) (1.23) (8.82) (1.29) −4.93 −7.44 −2.41 2.93 −2.06 (4.85) (12.84) (1.65) (8.71) (1.61) 2.64 −43.01∗∗∗−13.72∗∗∗−61.98∗∗∗ 3.08 (8.03) (15.93) (3.94) (20.03) (2.73) −1.93 5.32 −2.86∗∗∗ 2.83 −2.59∗ (4.07) (7.70) (0.97) (7.75) (1.52) 1.66 −8.01 −2.48∗∗∗−11.55∗ 0.28 (4.04) (6.23) (0.66) (6.65) (0.98) −1.95 −19.82∗ −7.75∗∗∗−23.17∗∗∗−0.39 (4.95) (10.15) (1.23) (8.03) (1.41)
−20.41∗∗∗0.39 (1.78) −19.73∗∗∗0.20 (4.18) −7.94∗∗ 0.46 (3.49) −13.28∗∗ 0.30 (6.64) −10.25∗∗∗0.29 (0.95) −30.24∗∗∗0.59 (4.29)
−7.11 (6.67) −10.00∗ (5.95) −5.12 (8.31) 0.59 (3.88) −3.78 (6.19)
α1i = α2i β1i = β2i
α1i = α2i β1i = β2i
0.36
0.13
0.22
0.27
0.12
0.14
0.09
0.00
0.00
0.56
0.04
0.11
0.18
0.09
0.12
0.86
0.91
0.98
0.14
0.78
0.26
0.53
0.08
0.19
0.43
0.47
0.46
0.58
0.01
0.03
0.95
0.06
0.17
0.52
0.04
0.12
0.49
0.37
0.56
0.09
0.34
0.13
0.96
0.03
0.10
0.47
0.00
0.00
0.46
0.88
0.76
0.41
0.00
0.00
0.79
0.88
0.96
0.62
0.02
0.06
0.76
0.00
0.00
Health Care AMGN BAX BMY CI HCA JNJ MDT MEDI MRK PFE
−1.21 (4.58) 0.66 (5.65) 0.38 (5.11) 0.52 (3.82) −2.16 (10.31) −5.95∗ (3.47) 3.64 (6.55) −4.88 (8.25) −0.97 (4.73) 3.01 (4.49)
−13.66 (13.89) 2.96 (8.17) −15.69∗ (9.38) −11.15 (7.35) −2.62 (12.14) 4.13 (7.43) −12.90 (11.67) −24.00 (16.77) 4.70 (8.09) −14.74∗ (8.43)
Industrials BA BNI DAL FDX GD GE
continued on next page
16
continued from previous page Wald tests α0i HON MMM NSC ROK RTN TYC UTX VIAB
α1i
−6.68 −5.20 (5.87) (12.18) −2.31 −13.10 (4.25) (9.53) −6.90 10.52 (6.44) (14.60) 3.27 −8.71 (8.37) (14.11) −1.60 1.22 (4.24) (9.33) −2.88 −22.65∗ (3.60) (11.78) 6.52 −26.93 (7.49) (19.72) 0.68 −9.84 (4.41) (10.73)
β1i
α2i
−3.78∗∗∗ −3.45 (1.42) (11.07) −4.79∗∗∗ −7.71 (1.46) (7.71) ∗ −2.47 −11.73 (1.32) (10.79) −1.71 −22.91∗ (1.35) (12.49) −2.27∗∗∗−11.46∗ (0.56) (6.49) −6.74∗∗∗−10.84 (1.82) (9.50) ∗ −4.33 −13.85 (2.26) (10.14) −5.03∗∗ −6.92 (2.15) (8.72)
β2i
δi
R
2
−5.15∗ −3.40 0.22 (3.07) (3.72) −1.01 −6.77∗∗∗0.20 (1.52) (1.25) −3.75 −8.70∗∗∗0.21 (2.70) (2.49) 1.50 −3.84∗∗∗0.07 (1.52) (1.35) 1.06 −6.52 0.27 (0.67) (7.79) −0.90 −4.92∗ 0.20 (2.05) (2.83) −0.72 −10.41∗ 0.09 (1.25) (5.81) −4.65∗ −17.12∗∗∗0.32 (2.47) (2.98)
α1i = α2i β1i = β2i
α1i = α2i β1i = β2i
0.90
0.69
0.92
0.62
0.07
0.18
0.16
0.67
0.34
0.33
0.12
0.19
0.19
0.00
0.00
0.41
0.03
0.09
0.50
0.17
0.38
0.81
0.91
0.97
0.20
0.37
0.24
0.63
0.46
0.67
0.05
0.15
0.05
0.77
0.00
0.00
0.97
0.29
0.57
0.23
0.19
0.23
0.94
0.70
0.93
0.56
0.03
0.08
0.40
0.94
0.70
0.37
0.92
0.67
0.21
0.11
0.16
0.10
0.64
0.24
0.24
0.68
0.42
IT CSC CSCO EMC HPQ IBM INTC LU MSFT NSM ORCL TXN UIS XRX
6.62 (4.33) 2.64 (5.58) −4.17 (5.27) 2.18 (5.77) −0.32 (5.97) −8.40 (7.46) −5.90 (9.58) −1.09 (5.21) −0.14 (6.92) 1.18 (6.88) −0.26 (6.79) 2.40 (4.17) −5.94 (6.18)
−23.25∗∗∗ −4.62∗∗∗−11.12 −2.82∗ −13.49∗∗∗0.35 (8.12) (1.06) (7.91) (1.69) (1.27) −24.51∗ −9.73∗∗∗−16.21 −6.04 −28.70∗∗∗0.36 (14.20) (1.30) (12.34) (4.79) (11.12) −38.85∗∗ −12.81∗∗∗ 0.36 −6.28 −28.69∗∗∗0.42 (16.72) (1.72) (13.61) (4.12) (3.14) −32.10∗∗∗−12.59∗∗∗−36.47∗∗∗ 0.47 −12.22∗∗∗0.49 (12.34) (2.04) (11.49) (1.83) (4.59) ∗∗∗ ∗ −15.78 −4.18 −16.16 −1.54 −23.87∗∗∗0.35 (10.56) (1.23) (9.24) (2.19) (7.33) −22.49 −10.69∗∗∗ −3.70 −5.22 −21.88∗ 0.38 (14.88) (1.86) (11.43) (3.71) (13.00) −1.74 −6.54∗∗∗ −2.97 −5.01 −24.30∗∗∗0.29 (15.79) (1.99) (15.10) (3.48) (7.08) −18.12 −5.58∗∗∗−10.68 −1.30 −21.46∗∗∗0.33 (11.33) (1.03) (9.25) (1.65) (7.66) ∗∗∗ −16.61 −6.30 −4.32 −6.62 −27.48∗∗∗0.33 (13.18) (1.22) (11.74) (4.33) (4.30) −22.58 −8.88∗∗∗ −5.82 −9.63 −9.46 0.20 (15.28) (1.60) (14.88) (7.23) (9.34) −37.01∗∗ −10.65∗∗∗−15.30 −2.42 −20.86∗∗∗0.30 (15.81) (2.44) (12.03) (4.51) (5.44) −33.77∗∗ −10.01∗∗∗ −5.60 −7.94∗∗ −8.41∗∗∗0.37 (15.05) (2.55) (9.96) (3.57) (2.54) ∗∗∗ ∗ −13.93 −6.07 −1.44 −4.81 −12.54∗∗∗0.31 (10.48) (1.08) (8.92) (2.87) (3.07)
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17
continued from previous page Wald tests
Materials AA ATI BCC DD DOW IP WY Telecomm. NXTL S SBC T VZ Utilities AEP AES ETR EXC SO
α0i
α1i
−0.95 (5.79) −5.13 (12.93) −0.58 (4.13) −0.99 (4.22) −1.86 (3.54) −2.05 (4.64) −6.61 (5.70)
−10.80 (13.16) 9.32 (23.88) −12.60 (8.78) −13.91 (9.79) −26.54∗∗ (13.06) −15.20 (10.67) −8.94 (12.85)
−7.31∗∗∗ −8.15 (1.70) (9.60) −2.73 −10.51 (2.87) (16.35) −4.72∗∗∗−14.35∗ (0.87) (8.56) ∗∗∗ −5.90 −13.98 (1.38) (8.76) ∗∗∗ −6.48 −5.88 (1.38) (14.25) −7.84∗∗∗ 2.35 (1.44) (10.89) −5.67∗∗∗ −6.86 (1.50) (8.47)
9.44 (9.14) 0.07 (6.53) 0.97 (5.12) 2.17 (5.26) 3.01 (4.41)
−42.77∗∗ (20.27) −10.18 (11.51) −24.82∗ (13.43) −22.11 (13.71) −31.43∗ (17.79)
−8.39∗∗∗−51.91∗∗ 4.03 (3.24) (23.90) (4.25) −5.17∗∗∗−12.48 1.22 (1.53) (10.64) (1.82) −8.67∗∗∗−16.55 −2.31 (2.67) (10.51) (1.68) −4.98∗∗∗−17.90∗∗ −1.48 (1.11) (8.93) (2.68) ∗∗∗ −7.07 −9.44 −2.12 (2.62) (7.55) (1.43)
5.45 −23.48∗∗ (7.22) (10.87) 6.98 −7.96 (7.20) (12.95) 0.65 −2.56 (3.26) (7.76) 3.37 −9.96 (5.48) (12.05) 5.94 −9.03 (4.11) (7.32)
β1i
α2i
β2i
δi
R
2
−2.74 −9.63∗ 0.33 (2.77) (5.11) −1.01 85.09∗∗∗0.12 (1.92) (18.55) −2.09 0.89 0.30 (1.77) (2.08) −0.96 −15.13∗∗∗0.37 (2.54) (2.80) −1.64 −7.23∗ 0.25 (4.19) (3.76) −3.50 −20.12∗ 0.33 (2.46) (10.57) −1.81 −22.18∗∗∗0.38 (2.17) (1.60) −15.31∗∗∗0.14 (4.42) −21.18∗∗∗0.29 (1.40) −29.40∗∗∗0.55 (2.16) −17.82∗∗ 0.24 (7.64) −43.57∗∗∗0.31 (15.74)
−6.32∗∗∗−16.83 −1.21 −15.22∗∗∗0.32 (1.68) (10.70) (1.25) (1.52) −2.71 −21.27 −0.36 −6.28∗ 0.13 (1.79) (14.69) (3.32) (3.24) ∗ ∗ −2.06 −9.97 0.50 −7.84∗∗∗0.16 (1.18) (5.94) (0.85) (1.97) −2.25∗∗∗−16.97∗ −0.75 −34.43∗∗∗0.18 (0.81) (9.41) (0.94) (10.12) −1.57∗ −13.59∗∗ −0.80 −10.47∗∗ 0.22 (0.94) (6.28) (0.87) (5.18)
α1i = α2i β1i = β2i
α1i = α2i β1i = β2i
0.85
0.16
0.37
0.38
0.62
0.50
0.87
0.18
0.40
1.00
0.09
0.21
0.27
0.28
0.18
0.20
0.13
0.14
0.87
0.15
0.34
0.75
0.02
0.07
0.86
0.01
0.03
0.59
0.04
0.13
0.77
0.23
0.48
0.23
0.10
0.22
0.56
0.01
0.05
0.43
0.53
0.67
0.39
0.08
0.08
0.59
0.22
0.38
0.55
0.55
0.71
Note: The table shows the results from the regression of stock returns (in basis points) during the five-minute interval following FOMC announcements on surprises in Federal funds rate changes allowing for different effects of positive and negative surprises, and for different effects of ‘reversal’ decisions (equation (A.5)). The model is estimated using individual stock returns for the 77 FOMC meetings between May 1997 and October 2006. Negative and positive surprises occur in 26 and 28 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
18
Figure A.3: Asymmetric effects of positive and negative surprises for individual stock returns 35 alpha_1 alpha_2
30
Number of stocks
25
20
15
10
5
0 -58.4
-51.1
-43.9
-36.6
-29.4
-22.1
-14.9
-7.6
-0.4
6.9
Average alpha in bucket
(a) Intercepts α1 and α2 40 beta_1 beta_2
35
Number of stocks
30 25 20 15 10 5 0 -12.8
-11.0
-9.2
-7.3
-5.5
-3.8
-1.9
-0.1
1.8
3.6
Average beta in bucket
(b) Surprise coefficients β1 and β2 Note: The figure shows histograms of the coefficient estimates in the regression (A.5) allowing for asymmetric effects of positive and negative surprises in the target rate change, estimated using individual stock returns during the five-minute interval immediately following the FOMC announcement.
19
20
−3.51 (2.69) −3.92∗ (2.25) −2.36 (2.61) −2.34 (3.09) −4.56 (4.65) −2.75 (1.99) −2.31 (2.45) −6.53 (4.14) −3.44 (2.18) −2.21 (1.97) −1.76 (1.90)
−9.38∗∗ (4.33) −8.64∗∗ (3.86) −6.52∗ (3.88) −4.75 (4.69) −14.28∗∗ (6.65) −5.10 (3.58) −8.26∗∗ (4.14) −15.53∗∗ (6.77) −8.91∗∗ (4.02) −11.55∗∗ (5.83) −3.91 (3.87) 7.35 (11.36) 7.97 (11.23) 4.85 (9.05) 13.64 (9.56) 20.30 (18.71) 2.57 (9.13) 2.24 (8.10) 3.56 (14.69) 2.94 (10.45) 11.36 (13.93) 3.11 (7.02)
α1 −4.36∗∗∗ (0.87) −4.27∗∗∗ (0.84) −2.92∗∗∗ (0.77) −3.79∗∗∗ (0.79) −5.83∗∗∗ (1.47) −3.27∗∗∗ (0.65) −3.84∗∗∗ (0.68) −6.50∗∗∗ (1.16) −4.61∗∗∗ (0.93) −4.24∗∗∗ (0.98) −2.21∗∗∗ (0.65)
β1 −1.46 (5.60) −0.03 (7.83) −4.29 (3.71) −1.98 (5.48) −0.19 (7.66) −2.85 (5.18) −5.22 (5.82) −0.19 (6.01) 3.21 (6.66) −1.32 (6.26) 0.95 (5.21)
α2 −2.20 (2.30) −2.12 (2.67) −1.70∗ (1.00) −1.97 (2.01) −0.64 (3.74) −2.14 (2.08) −2.35 (2.45) −1.77 (2.66) −1.78 (2.83) −4.83∗ (2.89) −6.98∗∗∗ (2.65)
β2 −18.14∗∗∗ (4.37) −20.33∗∗∗ (4.97) −19.83∗∗∗ (2.15) −20.31∗ (10.86) −36.41∗∗∗ (5.43) −11.54∗∗ (5.31) −11.46∗∗∗ (4.44) −19.66∗∗∗ (5.79) 0.61 (9.60) −17.33∗∗ (8.17) −9.06 (7.20)
δ
0.22
0.31
0.33
0.36
0.28
0.27
0.39
0.31
0.33
0.36
0.33
R2
0.81
0.42
0.98
0.82
0.47
0.62
0.32
0.16
0.36
0.57
0.50
α1 = α2
0.08
0.85
0.33
0.10
0.55
0.60
0.19
0.40
0.32
0.44
0.37
β1 = β2
0.20
0.69
0.63
0.24
0.70
0.79
0.27
0.35
0.47
0.67
0.56
α1 = α2 β1 = β2
where Rit is the return of stock i during the five-minute interval following an FOMC announcement, St is the surprise as defined in (A.1), ∆F Ft is the actual target rate change, D(A) is a dummy variable taking the value 1 if the event A is true and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for individual stock returns for the constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. Target rate decreases and increases occur in 12 and 23 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
Rit = (α0i + β0i St )D(∆F Ft = 0) + (α1i + β1i St )D(∆F Ft < 0) + (α2i + β2i St )D(∆F Ft > 0) + δi St REVt + εit ,
Note: The table shows results for the regression
Utilities (5)
Telecomm. (5)
Materials (7)
IT (13)
Industrials (14)
Health Care (10)
Financials (14)
Energy (6)
Cons. Staples (11)
Cons. Discr. (15)
All stocks (100)
β0
α0
Wald tests
Table A.6: Asymmetric response of returns to surprises following target rate decreases and increases
21 −3.32 (4.59) −0.49 (3.14)
Telecomm. (5)
Utilities (5)
−1.93∗∗ (0.93) −5.88∗∗∗ −32.87∗∗∗ 0.34 (1.47) (4.80) −3.87∗∗∗ −12.05∗∗∗ 0.28 (1.13) (3.64)
−3.50∗∗∗ −13.20∗ (0.93) (7.00) −28.85∗∗ (13.15)
−5.09∗∗ (2.28) −2.76∗∗∗ −18.70∗∗ (0.92) (9.32)
−4.10∗∗ (1.61)
−3.98∗∗ (1.58)
0.28 0.20
−19.39∗∗ (7.95)
−2.57∗∗∗ −18.20∗∗∗ −2.05∗∗∗ −13.69∗∗ (0.75) (6.26) (0.67) (6.11)
0.01
0.46
0.09
0.23
0.10
0.08
0.06
0.11
0.22
0.18
0.11
α1 = α2
0.60
0.96
0.05
0.41
0.71
0.44
0.77
0.23
0.92
0.62
0.63
β1 = β2
0.03
0.72
0.02
0.46
0.26
0.22
0.17
0.11
0.46
0.34
0.28
α1 = α2 β1 = β2
where Rit is the return of stock i during the five-minute interval following an FOMC announcement, St is the surprise as defined in (A.1), N BERt is a dummy variable taking the value 1 for announcements during recessions, defined according to the NBER turning point dates, and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for individual stock returns for the constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. Six announcement occur during the NBER-defined recession between March 2001 and November 2001. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
Rit = (α1i + β1i St )(1 − N BERt ) + (α2i + β2i St )N BERt + δi St REVt + εit ,
−16.55 (17.44)
−6.29∗∗∗ (1.15)
−3.20∗∗∗ −21.19∗∗ (1.10) (10.15)
0.33
−7.71∗∗∗ −18.74∗∗∗ 0.33 (2.19) (5.03)
−5.37∗∗∗ −29.25 (1.77) (19.22) 0.32 (7.83)
−3.79∗∗∗ −11.09∗∗∗ 0.26 (0.85) (2.80)
−3.29∗∗∗ −17.41∗∗ (1.07) (7.04)
−20.51∗∗∗ 0.27 (4.43)
−2.88∗∗∗ −18.59∗∗∗ 0.30 (0.98) (1.94)
−2.75∗∗∗ −13.98∗ (1.00) (8.17)
R2
−4.49∗∗∗ −20.95∗∗∗ 0.32 (1.04) (3.41)
δ
−3.71∗∗∗ −18.19∗ (1.20) (10.78)
β2 −4.60∗∗∗ −17.85∗∗∗ 0.30 (1.13) (2.75)
α2
−3.77∗∗∗ −20.43∗∗ (1.29) (10.39)
β1
Note: The table shows results for the regression
−2.93 (3.54)
−1.76 (2.94)
Health Care (10)
Materials (7)
−1.72 (5.93)
Financials (14)
−5.60 (4.59)
−1.30 (2.75)
Energy (6)
IT (13)
−3.18 (3.03)
Cons. Staples (11)
−4.60 (3.36)
−2.78 (3.72)
Cons. Discr. (15)
Industrials (14)
−3.03 (3.62)
All stocks (100)
α1
Wald tests
Table A.7: Asymmetric response of returns to surprises in expansions and recessions
22
−2.14 (1.45) −4.55 (4.72)
−1.48 (3.80) −3.22 (7.10) −1.82 (3.34) −4.57 (3.64) −6.29 (5.57) −2.79 (4.12) −4.36 (5.26) −0.07 (3.59)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
−5.73 (5.38)
−5.94 (8.77)
−6.61 (6.14)
−9.42 (8.67)
−7.98 (5.29)
−6.32 (5.14)
α1 = α2 0.62 0.35
−4.21∗∗∗ −18.15∗∗∗ 0.29 (0.95) (3.79) −4.10∗∗∗ −20.77∗∗∗ 0.31 (0.87) (4.06)
0.83 0.46 0.60 0.76 0.60 0.88 0.38
−5.47∗∗∗ −33.44∗∗∗ 0.33 (1.44) (6.41) −3.21∗∗∗ −12.47∗∗∗ 0.25 (0.64) (4.07) −3.66∗∗∗ −11.31∗∗∗ 0.25 (0.76) (3.32) −6.48∗∗∗ −19.31∗∗∗ 0.32 (1.24) (5.86) 0.30
−4.62∗∗∗ (0.95)
−4.21∗∗∗ −22.21∗∗∗ 0.27 (1.23) (8.03) −2.26∗∗∗ −12.66∗∗ (0.74) (6.43)
0.19
0.85
0.29
−3.81∗∗∗ −21.24∗∗ (1.32) (10.14)
0.01 (8.45)
0.69
−2.53∗∗∗ −18.13∗∗∗ 0.30 (0.66) (2.52)
δ
R2
β2
0.83
0.31
0.36
0.63
0.74
0.69
0.85
0.39
0.74
0.86
0.76
β1 = β2
0.66
0.59
0.59
0.88
0.81
0.72
0.96
0.68
0.89
0.62
0.84
α1 = α2 β1 = β2
where Rit is the return of stock i during the five-minute interval following an FOMC announcement, St is the surprise as defined in (A.1), EM Pt is a dummy variable taking the value 1 for announcements during recessions and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. A recession is defined to start (end) when there are three consecutive monthly declines (increases) in nonfarm payroll employment. The model is estimated for individual stock returns for the constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. 20 announcement occur during the recession period between March 2001 and August 2003. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
Rit = (α1i + β1i St )(1 − EM Pt ) + (α2i + β2i St )EM Pt + δi St REVt + εit ,
Note: Note: The table shows results for the regression
−2.66 (1.71)
−2.25 (1.49)
−2.58 (2.02)
−4.79 (3.31)
−3.00 (1.88)
−2.46 (1.78)
−5.55 (7.77)
−3.13 (7.75)
−5.93 (4.97)
−3.21∗ (1.95)
−3.53 (3.22)
Cons. Staples (11)
−8.52 (5.44)
−6.92 (5.96)
α2
−3.67 (2.34)
−1.93 (4.39)
Cons. Discr. (15)
−3.39 (2.48)
−3.27 (4.22)
β1
All stocks (100)
α1
Wald tests
Table A.8: Asymmetric response of returns to surprises in expansions and recessions
Table A.9: Response of stock prices to actual target rate changes and surprises (daily returns) Rate Changes β
R2
Surprises & Expected β
γ
R2
Surprise, Expected & Reversal β
γ
δ
R2
All stocks (100)
0.27 0.02 (0.72)
−7.22∗∗∗ 0.62 0.05 (2.20) (0.49)
−7.17∗∗∗ 0.60 (2.28) (0.51)
Cons. Discr. (15)
0.00 0.02 (0.68)
−8.54∗∗∗ 0.40 0.07 (2.01) (0.53)
−8.20∗∗∗ 0.31 −13.69 0.08 (2.18) (0.54) (20.67)
Cons. Staples (11)
0.17 0.01 (0.48)
−0.64 (2.16)
0.21 0.01 (0.48)
−0.34 (2.25)
0.12 (0.51)
−8.09 0.04 (7.36)
−0.84 0.00 (2.53)
−15.94∗ (8.66)
0.04 0.05 (1.84)
−16.26∗ (8.75)
0.10 (1.88)
−9.87 0.06 (98.90)
Energy (6) Financials (14)
1.01 0.02 (0.91)
−8.92∗∗ 1.43∗ 0.08 (3.55) (0.79)
Health Care (10)
0.90∗ 0.03 (0.50)
−2.84 (2.02)
Industrials (14) IT (13) Materials (7) Telecomm. (5) Utilities (5)
1.06∗∗ 0.05 (0.48)
−5.91 0.07 (11.78)
−8.09∗∗ 1.20 −25.74∗∗ 0.11 (3.57) (0.83) (12.51) −3.50∗ (2.04)
1.22∗∗ −0.87 0.08 (0.48) (15.98)
−0.23 0.01 (0.86)
−7.38∗∗ 0.11 0.05 (3.43) (0.70)
−7.24∗∗ 0.06 −12.82 0.06 (3.53) (0.73) (16.21)
1.02 0.02 (1.02)
−10.55∗∗∗ 1.51∗ 0.07 (3.93) (0.80)
−10.65∗∗∗ 1.54∗ (4.04) (0.84)
2.91 0.07 (16.92)
−1.00 0.02 (0.74)
−5.40 −0.81 0.03 (3.76) (0.67)
−4.98 −0.94∗ (3.57) (0.56)
6.14 0.05 (45.92)
2.00∗ 0.03 (1.08)
−10.75∗∗ 2.55∗∗∗0.08 (4.79) (0.98)
−1.11 0.03 (0.73)
−1.14 −1.10 0.03 (3.81) (0.73)
−10.94∗∗ 2.59∗∗ −3.86 0.09 (4.93) (1.03) (40.56) −3.02 −0.60 (3.64) (0.69)
49.88∗ 0.09 (28.80)
Note: The table shows results from regressions of daily stock returns (in basis points) on days with FOMC announcements on Federal funds rate changes (equation (A.2)), on surprises and expected rate changes (equation (A.3)), and on surprises and expected rate changes allowing for different effects of ‘reversal’ decisions (equation (A.4)). The models are estimated for individual stock returns for the constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks.
23
24
−16.37 (12.16) −3.82 (4.31)
−11.58 (79.94)
−75.23 (61.23) 14.27 (64.59) −36.87 (45.87)
35.14 (47.75)
71.78∗∗∗ −27.96 (24.74) (41.05)
14.05 (38.04)
6.05 (20.12)
25.16 (16.62)
32.50 (22.20)
81.89∗∗ (32.72)
23.54 (23.31)
53.31∗ (31.35)
13.88 (29.83)
Cons. Staples (11)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
−7.87 (5.66)
−1.66 (5.87)
−3.51 (8.47)
−14.22∗∗ (6.59)
−4.45 (6.82)
0.27 (2.47)
−30.95 (40.75)
−123.73∗∗ (56.41)
−57.06 (56.92)
5.74 (5.59)
−11.13 (12.22)
4.09 (7.83)
1.06 (7.79)
2.18 (5.34)
−69.62∗ (37.43) −110.80∗∗ (48.00)
−0.34 (4.88)
0.75 (7.54)
−6.21 (16.13)
−1.89 (5.46)
−2.99 (5.51)
−0.50 (4.38)
β2
−34.41 (29.18)
−120.02∗∗∗ (39.97)
−73.38 (78.02)
−6.28 (30.35)
−108.40∗∗∗ (40.31)
−77.48∗∗ (31.09)
α2
40.53 (27.98)
−16.71 (34.10)
7.88 (48.41)
−8.94 (17.57)
−10.49 (19.22)
−6.26 (15.28)
−30.58∗∗ (12.34)
5.64 (100.94)
−5.67 (6.75)
−3.87 (21.42)
−6.66 (12.67)
δ
0.10
0.12
0.05
0.10
0.09
0.09
0.14
0.10
0.06
0.12
0.10
R2
0.87
0.13
0.37
0.57
0.05
0.12
0.04
0.49
0.20
0.18
0.08
α1 = α2
0.09
0.49
0.51
0.14
0.44
0.91
0.60
0.62
0.30
0.67
0.40
β1 = β2
0.22
0.20
0.48
0.22
0.08
0.30
0.12
0.68
0.19
0.41
0.16
α1 = α2 β1 = β2
Note: The table shows the results from the regression of daily stock returns (in basis points) on surprises in Federal funds rate changes allowing for different effects of positive and negative surprises, and for different effects of ‘reversal’ decisions (equation (A.5)). The model is estimated for individual stock returns for the constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. Negative and positive surprises occur in 26 and 28 cases, respectively. The superscripts ∗∗∗ ∗∗ , , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
−23.48 (45.32)
15.58 (27.30)
4.99 (3.65)
−5.92 (3.95)
77.64∗∗∗ −49.38∗ (16.20) (28.90)
Cons. Discr. (15) 33.30 (28.97)
−5.02∗ (3.05)
β1
47.19∗∗∗ −16.63 (16.82) (27.72)
α1
All stocks (100)
α0
Wald tests
Table A.10: Asymmetric response of returns to positive and negative surprises (daily returns)
Figure A.4: Volatility changes around FOMC announcements 30 Daily change - positive surprises
25
Average absolute return
Daily change - negative surprises Daily change - no surprises
20
15
10
5
0
-5 -10
-5
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
Event time Note: The figure shows the average change in absolute return for the S&P100 constituents in fiveminute intervals around the announcements of the Federal funds target rate decision, relative to the pre-announcement day. The label ’5’ on the horizontal axis indicates the average return in the first 5 minutes after the announcement. The graph is based on the 77 scheduled FOMC meetings between May 1997 and October 2006, which are split into 23 ’No surprise’, 28 ’Positive surprise’ and 26 ’Negative surprise’ cases.
25
Table A.11: Mean change of realized volatility following FOMC announcements All
Rate Rate increase decrease (23 obs) (12 obs)
(77 obs)
Positive Negative surprise surprise (28 obs) (26 obs)
All stocks (100 stocks)
28.91∗∗∗ (51.91)
28.49∗∗∗ 52.17∗∗∗ (40.37) (57.88)
39.94∗∗∗ 33.22∗∗∗ (59.24) (50.93)
Consumer Discretionary (15)
25.24∗∗∗ (48.54)
26.71∗∗∗ 46.47∗∗∗ (44.80) (55.69)
35.95∗∗∗ 27.47∗∗∗ (51.07) (51.85)
Consumer Staples (11)
23.91∗∗∗ (37.91)
23.36∗∗∗ 40.75∗∗∗ (35.48) (40.65)
35.39∗∗∗ 24.28∗∗∗ (37.84) (38.33)
Energy (6)
20.25∗∗∗ (90.59)
15.41∗∗∗ 32.58∗∗∗ (36.04) (62.25)
24.71∗∗∗ 25.84∗∗∗ (134.76) (51.24)
Financials (14)
40.21∗∗∗ (52.12)
46.27∗∗∗ 69.14∗∗∗ (50.93) (60.12)
51.78∗∗∗ 49.12∗∗∗ (48.33) (62.51)
Health Care (10)
21.39∗∗∗ (43.33)
23.48∗∗∗ 42.74∗∗∗ (30.06) (48.09)
31.86∗∗∗ 24.65∗∗∗ (43.13) (45.77)
Industrials (14)
28.85∗∗∗ (43.84)
26.22∗∗∗ 48.04∗∗∗ (37.35) (49.56)
39.16∗∗∗ 31.38∗∗∗ (47.21) (43.69)
IT (13)
36.90∗∗∗ (57.40)
33.90∗∗∗ 73.70∗∗∗ (39.99) (74.23)
51.87∗∗∗ 44.96∗∗∗ (63.95) (55.46)
Materials (7)
27.41∗∗∗ (41.25)
25.85∗∗∗ 45.18∗∗∗ (32.64) (48.66)
36.91∗∗∗ 28.25∗∗∗ (44.96) (41.06)
Telecommunications (5)
36.06∗∗∗ (61.66)
26.75∗∗∗ 71.88∗∗∗ (39.08) (71.95)
51.31∗∗∗ 41.65∗∗∗ (73.73) (58.44)
Utilities (5)
17.52∗∗∗ (43.80)
17.78∗∗∗ 30.26∗∗∗ (28.51) (38.56)
26.00∗∗∗ 21.99∗∗∗ (40.09) (38.43)
Note: The table reports the average daily change of realized volatility in basis points during 60minute windows (from 10 minutes before until 50 minutes after) around FOMC announcements [excluding the first five minutes immediately following the announcement] on days of the 77 scheduled FOMC meetings from May 1997 to October 2006, with standard deviations given in parentheses. The table shows equally weighted averages across the individual constituents of the S&P100 index aggregated to the market level (all stocks) and sector level. Columns headed ‘Rate increase (decrease)’ show average volatilities following the announcement of an increase (decrease) of the Federal funds target rate. Columns headed ‘Positive (negative) surprise’ show average volatilities following a positive (negative) surprise in the target rate change, where the surprise is computed as the difference between the closing price of the nearby Fed funds futures contract one day before the announcement and on the announcement day itself, as given in (A.1). The superscripts ∗∗∗ , ∗∗ , and ∗ indicate significance at the 1%, 5% and 10% level, respectively.
26
Table A.12: Response of realized volatility to actual target rate changes and surprises Rate Changes β
R2
Surprises & Expected β
γ
R2
Surprise, Expected & Reversal β
γ
δ
R2
All stocks (100)
0.63∗∗∗ 0.06 (0.11)
4.13∗∗∗ (0.73)
0.20 0.16 (0.16)
4.13∗∗∗ (0.73)
0.19 (0.16)
1.37 (3.28)
0.18
Cons. Discr. (15)
0.65∗∗∗ 0.07 (0.11)
3.25∗∗∗ (0.71)
0.31∗∗ 0.13 (0.15)
3.25∗∗∗ (0.72)
0.29∗ (0.16)
4.16 (2.95)
0.15
Cons. Staples (11)
0.41∗∗∗ 0.04 (0.10)
3.13∗∗∗ (0.60)
0.12 0.12 (0.16)
3.07∗∗∗ (0.57)
0.06 (0.16)
7.02∗∗∗ 0.18 (1.69)
Energy (6)
0.53∗∗ 0.01 (0.25)
4.13∗ (2.50)
Financials (14)
0.94∗∗∗ 0.10 (0.11)
5.67∗∗∗ (1.28)
0.34 0.22 (0.24)
5.65∗∗∗ (1.27)
0.27 (0.24)
7.78 (6.74)
0.24
Health Care (10)
0.63∗∗∗ 0.09 (0.13)
4.15∗∗∗ (0.67)
0.24∗∗ 0.21 (0.11)
4.16∗∗∗ (0.67)
0.25∗∗ −0.56 (0.11) (2.81)
0.21
Industrials (14)
0.37∗∗∗ 0.03 (0.14)
4.33∗∗∗ −0.10 0.15 (0.52) (0.14)
4.33∗∗∗ −0.10 −0.05 (0.52) (0.14) (2.36)
0.15
IT (13)
0.93∗∗∗ 0.09 (0.15)
5.18∗∗∗ (1.04)
0.45∗ 0.18 (0.27)
5.19∗∗∗ (1.04)
0.46∗ −1.27 (0.28) (3.59)
0.19
Materials (7)
0.45∗∗∗ 0.07 (0.16)
2.51∗∗∗ (0.82)
0.15 0.11 (0.20)
2.53∗∗∗ (0.82)
0.18 −5.21 (0.20) (8.12)
0.13
Telecomm. (5)
0.76∗∗∗ 0.06 (0.20)
5.23∗∗∗ (1.01)
0.26 0.21 (0.35)
5.26∗∗∗ (1.02)
0.24 (0.36)
6.16 (9.11)
0.21
Utilities (5)
0.35∗∗ 0.04 (0.17)
2.48∗∗∗ (0.76)
0.12 0.10 (0.19)
2.54∗∗∗ (0.75)
0.17 −5.87 (0.19) (5.45)
0.12
−0.11 0.11 (0.64)
4.14∗ (2.49)
−0.07 −8.94 (0.65) (40.52)
0.12
Note: The table shows the results from regressions of the daily change in 60-minute realized volatility [excluding the first five minutes immediately following the announcement] on absolute Federal funds rate changes (equation (A.8)), on absolute surprises and absolute expected rate changes (equation (A.9)), and on absolute surprises and absolute expected rate changes allowing for different effects of ‘reversal’ decisions (equation (A.10)). The models are estimated for the volatilities of the individual constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks.
27
Table A.13: Response of individual realized volatilities to actual target rate changes and surprises
Rate Changes β
R
2
Surprises & Expected β
γ
R
2
Surprise, Expected & Reversal β
γ
δ
R2
Cons. Discr. AOL BDK CCU DIS EK F GM HD HET LTD MAY MCD OMX RSH TOY
1.29∗∗∗ 0.09 (0.44) 0.46∗ 0.05 (0.26) 0.26 0.00 (0.45) 0.61∗ 0.07 (0.33) 0.66∗∗ 0.06 (0.31) 0.98∗ 0.11 (0.52) 0.98∗∗∗ 0.15 (0.30) 0.93∗∗∗ 0.12 (0.31) 0.46 0.03 (0.29) 0.84∗ 0.05 (0.43) 0.89∗∗∗ 0.13 (0.33) 0.26 0.01 (0.23) 0.22 0.01 (0.30) −0.04 0.00 (0.44) 0.99∗∗ 0.12 (0.38)
1.18 1.26∗∗ (1.77) (0.59) 1.76 0.28 (1.13) (0.32) 5.55∗∗∗ −0.48 (1.87) (0.40) 3.95∗∗ 0.24 (1.84) (0.31) 4.83∗∗∗ 0.02 (1.29) (0.33) 5.06 0.44 (3.74) (0.38) 1.82∗ 0.75∗∗ (1.06) (0.37) 4.05∗∗∗ 0.57∗ (1.29) (0.35) 1.85 0.25 (1.20) (0.33) −0.03 1.16∗∗ (1.80) (0.46) 3.48∗∗ 0.44 (1.65) (0.43) 4.53∗∗∗ −0.22 (0.90) (0.24) 2.28∗∗ 0.09 (1.10) (0.37) 5.16∗∗∗ −0.71∗ (1.27) (0.42) 3.33∗ 0.55 (1.76) (0.45)
0.31 0.01 (0.34) 0.08 0.00 (0.24) 0.33 0.03 (0.20) 0.92∗∗∗ 0.12 (0.25) 0.43∗ 0.03 (0.25)
2.14∗∗ 0.07 (1.07) (0.42) 3.00∗∗∗ −0.23 (0.98) (0.28) 2.23∗∗ 0.11 (0.97) (0.23) 5.91∗∗∗ 0.36 (1.22) (0.25) 1.43 0.34 (1.11) (0.31)
0.10 0.07 0.07 0.17 0.15 0.20 0.14 0.20 0.04 0.09 0.18 0.18 0.07 0.19 0.14
1.32 1.08∗∗ 13.62 (1.62) (0.47) (19.49) 1.70 0.23 6.23 (1.17) (0.32) (4.57) 5.59∗∗∗ −0.45 −4.33 (1.87) (0.41) (3.29) 3.84∗∗ 0.15 10.67∗∗ (1.88) (0.32) (4.16) 4.89∗∗∗ 0.07 −6.71 (1.30) (0.33) (5.19) 5.07 0.45 −1.62 (3.75) (0.38) (2.49) 1.73∗ 0.67∗ 8.97∗∗∗ (1.05) (0.38) (2.63) 4.05∗∗∗ 0.57 −0.33 (1.30) (0.35) (4.57) 1.76 0.17 9.48∗ (1.17) (0.34) (5.51) −0.03 1.15∗∗ 0.56 (1.81) (0.47) (2.22) 3.54∗∗ 0.58 −14.18∗∗∗ (1.59) (0.41) (5.10) 4.43∗∗∗ −0.30 9.96∗∗∗ (0.84) (0.24) (1.07) 2.25∗∗ 0.08 2.00 (1.10) (0.38) (1.99) 5.29∗∗∗ −0.75∗ 31.23∗∗∗ (1.29) (0.42) (7.24) 3.34∗ 0.59 −3.12 (1.75) (0.44) (12.19)
0.12 0.09 0.08 0.23 0.17 0.20 0.17 0.20 0.07 0.09 0.26 0.24 0.07 0.20 0.14
Cons. Staples AVP BUD CL CPB G
28
0.03 0.06 0.08 0.29 0.05
2.16∗∗ 0.09 −2.60 0.03 (1.06) (0.43) (6.05) 2.91∗∗∗ −0.31 9.82∗∗∗ 0.10 (0.96) (0.28) (1.16) ∗∗ 2.10 0.00 13.06∗∗∗ 0.18 (0.91) (0.22) (4.05) 5.91∗∗∗ 0.36 −0.52 0.29 (1.23) (0.26) (2.28) 1.37 0.19 14.79∗∗∗ 0.16 (1.04) (0.31) (4.50) continued on next page
continued from previous page Rate Changes β HNZ KO MO PEP SLE WMT
R
2
0.12 0.00 (0.20) 0.68∗∗∗ 0.10 (0.20) 0.23 0.01 (0.30) 0.41 0.04 (0.28) 0.16 0.01 (0.20) 0.81∗∗∗ 0.13 (0.23)
Surprises & Expected β
γ
3.42∗∗∗ −0.12 (1.03) (0.23) 4.29∗∗∗ 0.34 (0.96) (0.22) 2.41∗∗ 0.08 (1.16) (0.36) 3.83∗∗∗ 0.06 (1.28) (0.31) 2.22∗∗ −0.13 (1.02) (0.24) 3.54∗∗∗ 0.42 (1.23) (0.26)
R
2
0.12 0.27 0.06 0.17 0.05 0.20
Surprise, Expected & Reversal β
γ
3.29∗∗∗ −0.24 (0.95) (0.22) 4.12∗∗∗ 0.19 (0.85) (0.21) 2.43∗∗ 0.10 (1.16) (0.37) 3.78∗∗∗ 0.02 (1.30) (0.31) 2.18∗∗ −0.17 (1.02) (0.24) 3.50∗∗∗ 0.38 (1.22) (0.27)
δ 13.42∗∗∗ (4.00) 17.45∗∗∗ (2.28) −2.05 (2.21) 5.04∗∗∗ (1.91) 4.21∗∗∗ (1.57) 4.60∗ (2.67)
R2 0.23 0.43 0.06 0.18 0.06 0.21
Energy BHI EP HAL SLB WMB XOM
0.41 (0.34) 2.62 (2.56) 0.22 (0.33) −0.14 (0.24) −0.22 (0.70) 0.26 (0.34)
0.02 0.02 0.01 0.00 0.00 0.02
4.58∗∗∗ −0.30 (1.62) (0.32) 0.57 2.18 (8.36) (3.04) 2.74 −0.22 (2.03) (0.36) 3.77∗∗ −0.55∗∗ (1.59) (0.27) 7.29∗∗ −1.34∗∗ (3.63) (0.61) 5.81∗∗∗ −0.43 (1.22) (0.26)
0.08 0.01 0.03 0.12 0.08 0.31
4.56∗∗∗ −0.32 2.49 (1.63) (0.33) (3.94) 0.47 2.24 −21.56∗∗ (8.40) (3.06) (9.71) 2.83 −0.15 −8.93 (2.04) (0.35) (9.92) ∗∗ ∗ 3.81 −0.51 −4.48∗∗∗ (1.63) (0.27) (1.23) 7.41∗∗ −1.24∗∗ −11.81∗∗∗ (3.57) (0.60) (3.01) 5.78∗∗∗ −0.42 −9.35∗∗ (1.22) (0.26) (3.71)
0.09 0.01 0.05 0.13 0.09 0.31
Financials AIG ALL AXP BAC C GS HIG JPM LEH
0.71∗∗ 0.08 (0.29) 0.60∗∗ 0.06 (0.29) 1.09∗∗∗ 0.14 (0.33) 0.73∗∗ 0.07 (0.32) 1.21∗∗∗ 0.13 (0.33) 0.48 0.03 (0.33) 0.39 0.03 (0.26) 1.27∗∗ 0.13 (0.55) 0.96∗∗ 0.07 (0.37)
5.66∗∗∗ 0.16 (1.18) (0.27) 3.83∗∗∗ 0.20 (0.95) (0.31) 6.25∗∗∗ 0.48 (1.55) (0.37) 4.01∗∗∗ 0.29 (1.52) (0.32) 5.60∗∗∗ 0.72∗∗ (1.77) (0.36) 4.10∗∗ 0.16 (1.76) (0.36) 4.55∗∗∗ −0.09 (1.41) (0.24) 8.65∗∗∗ 0.31 (2.86) (0.52) 5.25∗∗∗ 0.39 (1.72) (0.42)
29
0.28 0.13 0.31 0.13 0.23 0.12 0.19 0.33 0.14
5.65∗∗∗ 0.15 1.26 0.28 (1.19) (0.27) (3.75) 3.85∗∗∗ 0.22 −2.28∗ 0.13 (0.95) (0.32) (1.34) 6.28∗∗∗ 0.51 −3.41 0.31 (1.56) (0.36) (13.12) 4.00∗∗∗ 0.28 0.68 0.13 (1.52) (0.33) (2.56) 5.52∗∗∗ 0.64∗ 8.42 0.25 (1.74) (0.37) (5.85) 4.19∗∗ 0.03 31.66∗∗∗ 0.25 (1.71) (0.35) (3.87) 4.50∗∗∗ −0.14 5.63∗∗∗ 0.21 (1.43) (0.23) (1.50) 8.70∗∗∗ 0.35 −5.08 0.34 (2.84) (0.52) (10.26) 5.15∗∗∗ 0.31 10.12 0.16 (1.74) (0.36) (23.37) continued on next page
continued from previous page Rate Changes β MER MWD ONE USB WFC
R
2
Surprises & Expected β
γ
1.68∗∗∗ 0.22 (0.41) 1.69∗∗∗ 0.18 (0.46) 1.20∗∗∗ 0.12 (0.42) 0.76∗∗∗ 0.07 (0.27) 0.46 0.02 (0.35)
6.87∗∗∗ 1.09∗∗ (1.50) (0.47) 8.29∗∗∗ 0.77 (2.08) (0.57) 6.35∗∗∗ 0.16 (1.67) (0.46) 5.13∗∗∗ 0.22 (1.49) (0.31) 4.78∗∗∗ −0.12 (1.80) (0.33)
1.05∗∗∗ 0.12 (0.33) 0.79∗∗∗ 0.19 (0.23) 0.54∗ 0.06 (0.30) 0.62∗ 0.08 (0.32) 0.50∗∗∗ 0.14 (0.18) 0.17 0.01 (0.26) 0.26 0.01 (0.29) 1.04∗ 0.04 (0.62) 0.78∗∗∗ 0.16 (0.24) 0.55∗ 0.07 (0.32) 0.45 0.05 (0.30) 0.11 0.00 (0.29) 0.23 0.01 (0.48) 0.20 0.01 (0.27) 0.40∗∗ 0.04 (0.20) 0.92∗∗∗ 0.14 (0.32)
R
2
Surprise, Expected & Reversal β
γ
δ
R2
6.68∗∗∗ 0.93∗ (1.45) (0.47) 8.24∗∗∗ 0.72 (2.07) (0.58) 6.66∗∗∗ −0.15 (1.67) (0.43) 5.03∗∗∗ 0.15 (1.49) (0.30) 4.70∗∗∗ −0.18 (1.80) (0.33)
19.58∗ (10.89) 4.92 (9.37) 20.99∗∗∗ (2.40) 8.80 (9.64) 7.66∗∗∗ (1.95)
6.75∗∗∗ 0.47 0.30 (1.45) (0.34) 1.76 0.65∗∗∗ 0.22 (1.40) (0.20) 2.33 0.21 0.08 (1.85) (0.31) 4.21∗∗ 0.11 0.20 (1.95) (0.25) 0.12 0.52∗∗ 0.14 (0.89) (0.20) 3.42∗∗∗ −0.12 0.13 (0.98) (0.28) 3.50∗∗∗ −0.04 0.11 (1.11) (0.37) 8.89∗∗∗ 0.39 0.16 (2.78) (0.75) 4.83∗∗∗ 0.36 0.40 (0.64) (0.25) 5.68∗∗∗ −0.13 0.32 (1.84) (0.22)
6.74∗∗∗ 0.45 (1.45) (0.34) 1.76 0.65∗∗∗ (1.41) (0.20) 2.34 0.21 (1.85) (0.31) 4.21∗∗ 0.10 (1.96) (0.25) 0.14 0.51∗∗ (0.90) (0.21) 3.42∗∗∗ −0.12 (0.98) (0.29) 3.48∗∗∗ −0.06 (1.09) (0.37) 8.96∗∗∗ 0.46 (2.81) (0.76) 4.87∗∗∗ 0.40 (0.66) (0.25) 5.69∗∗∗ −0.12 (1.85) (0.22)
1.94 (3.44) 0.17 (2.54) −0.96 (2.91) 0.50 (4.38) 3.13 (3.76) 0.19 (1.24) 2.37 (5.83) −7.75∗∗ (3.95) −4.18 (4.35) −1.07 (1.55)
3.08∗∗ 0.02 (1.43) (0.27) 3.56∗∗∗ −0.35 (1.37) (0.31) 7.88∗∗∗ −0.85∗∗ (2.68) (0.38) 2.80∗∗ −0.13 (1.28) (0.25) 2.51∗∗∗ 0.10 (0.96) (0.21) 6.40∗∗∗ 0.29 (1.43) (0.32)
3.06∗∗ 0.01 1.46 0.10 (1.44) (0.27) (1.84) 3.63∗∗∗ −0.29 −6.99∗ 0.11 (1.41) (0.31) (3.80) 7.88∗∗∗ −0.86∗∗ 0.58 0.23 (2.69) (0.38) (1.96) 2.85∗∗ −0.08 −5.31 0.07 (1.25) (0.24) (7.64) 2.51∗∗∗ 0.10 −0.41 0.09 (0.96) (0.21) (3.30) 6.41∗∗∗ 0.30 −1.10 0.38 (1.43) (0.33) (1.44) continued on next page
0.35 0.31 0.18 0.18 0.12
0.43 0.31 0.28 0.21 0.13
Health Care AMGN BAX BMY CI HCA JNJ MDT MEDI MRK PFE
0.30 0.22 0.08 0.20 0.14 0.13 0.12 0.17 0.41 0.32
Industrials BA BNI DAL FDX GD GE
30
0.10 0.09 0.23 0.06 0.09 0.38
continued from previous page Rate Changes β HON MMM NSC ROK RTN TYC UTX VIAB
0.22 (0.35) 0.30 (0.22) 0.11 (0.36) 0.79∗∗ (0.31) 0.06 (0.28) 0.23 (0.46) 0.63∗∗ (0.29) 0.55∗ (0.32)
R
2
0.01 0.03 0.00 0.09 0.00 0.00 0.05 0.06
Surprises & Expected β
γ
5.10∗∗∗ −0.26 (1.08) (0.39) 4.04∗∗∗ −0.18 (0.74) (0.22) 3.13 −0.03 (2.46) (0.45) 4.08∗∗∗ 0.39 (1.18) (0.30) 2.08 −0.02 (1.84) (0.28) 4.95∗∗∗ −0.34 (1.34) (0.49) 5.92∗∗∗ −0.15 (1.97) (0.27) 5.14∗∗∗ 0.10 (1.11) (0.36)
R
2
0.13 0.21 0.04 0.17 0.10 0.06 0.19 0.25
Surprise, Expected & Reversal β
γ
5.09∗∗∗ −0.26 (1.08) (0.40) 4.02∗∗∗ −0.20 (0.74) (0.22) 3.07 −0.09 (2.42) (0.45) 4.03∗∗∗ 0.34 (1.18) (0.30) 2.07 −0.02 (1.84) (0.29) 4.96∗∗∗ −0.34 (1.34) (0.49) 5.94∗∗∗ −0.12 (1.98) (0.27) 5.14∗∗∗ 0.10 (1.11) (0.36)
δ 0.77 (4.86) 1.79∗∗ (0.83) 6.49 (5.87) 4.92∗∗∗ (1.34) −1.93 (4.72) −0.03 (7.27) −2.77 (1.85) 1.82 (2.15)
R2 0.13 0.21 0.05 0.18 0.10 0.06 0.19 0.25
IT CSC CSCO EMC HPQ IBM INTC LU MSFT NSM ORCL TXN UIS XRX
−0.18 0.00 (0.33) 1.24∗∗ 0.12 (0.54) 1.17∗∗ 0.09 (0.54) 0.75∗ 0.05 (0.45) 0.48∗∗ 0.04 (0.24) 0.89∗∗ 0.07 (0.39) 1.83∗∗ 0.14 (0.71) 0.48∗ 0.04 (0.26) 0.88∗∗ 0.05 (0.43) 1.35∗∗∗ 0.13 (0.42) 0.99∗∗ 0.09 (0.48) 1.79∗∗∗ 0.27 (0.33) 0.36 0.01 (0.31)
1.29 −0.22 0.01 (1.86) (0.41) 5.86∗∗ 0.67 0.21 (2.59) (0.63) 8.70∗∗∗ 0.24 0.26 (2.06) (0.61) 6.37∗∗∗ 0.15 0.17 (1.84) (0.42) 4.63∗∗∗ 0.06 0.17 (1.48) (0.30) 6.95∗∗∗ 0.18 0.23 (1.85) (0.42) 7.00∗∗ 1.57∗ 0.27 (2.73) (0.87) 4.19∗∗∗ 0.03 0.16 (1.36) (0.26) 5.11∗∗∗ 0.52 0.13 (1.42) (0.52) 7.01∗∗∗ 0.76 0.27 (2.04) (0.48) 5.70∗∗ 0.35 0.17 (2.84) (0.50) 3.55 1.40∗∗∗ 0.27 (2.50) (0.43) 0.97 0.15 0.01 (1.27) (0.38)
31
1.20 −0.30 10.02∗∗∗ 0.04 (1.81) (0.41) (3.66) ∗∗ 5.81 0.63 4.70 0.21 (2.60) (0.66) (3.05) 8.81∗∗∗ 0.34 −11.55∗ 0.29 (2.04) (0.60) (6.87) 6.40∗∗∗ 0.17 −2.41 0.18 (1.85) (0.42) (4.64) 4.51∗∗∗ −0.04 12.63∗ 0.23 (1.41) (0.29) (7.51) 7.01∗∗∗ 0.23 −6.46∗ 0.24 (1.88) (0.42) (3.69) 7.04∗∗ 1.60∗ −4.08 0.28 (2.76) (0.90) (4.38) 4.20∗∗∗ 0.04 −0.81 0.16 (1.37) (0.26) (1.43) 5.10∗∗∗ 0.51 1.03 0.13 (1.41) (0.52) (1.95) 7.07∗∗∗ 0.81∗ −5.78∗∗∗ 0.28 (2.09) (0.48) (2.14) 5.76∗∗ 0.40 −6.26 0.18 (2.84) (0.51) (4.66) 3.69 1.51∗∗∗ −13.91∗∗∗ 0.31 (2.47) (0.43) (3.25) 0.91 0.10 6.40 0.02 (1.27) (0.39) (5.79) continued on next page
continued from previous page Rate Changes β Materials AA ATI BCC DD DOW IP WY Telecomm. NXTL S SBC T VZ Utilities AEP AES ETR EXC SO
R
2
Surprises & Expected β
γ
R
2
0.77∗∗∗ 0.14 (0.22) −0.46 0.02 (0.52) 0.41 0.03 (0.32) 0.54∗∗∗ 0.08 (0.18) 0.49∗ 0.05 (0.28) 0.81∗∗ 0.08 (0.40) 0.61∗∗ 0.08 (0.25)
2.17∗∗ 0.45∗ (1.05) (0.24) 1.74 −0.79 (1.96) (0.60) 0.83 0.40 (1.40) (0.46) 3.56∗∗∗ 0.17 (0.86) (0.19) 2.44 0.07 (1.59) (0.36) 3.51∗∗ 0.53 (1.68) (0.54) ∗∗∗ 3.29 0.19 (1.10) (0.26)
1.35∗ 0.05 (0.70) 0.56∗ 0.05 (0.30) 0.62 0.05 (0.45) 1.04∗∗∗ 0.16 (0.35) 0.23 0.01 (0.55)
3.49 1.34 (5.53) (0.89) 2.26∗ 0.35 (1.27) (0.41) 6.38∗∗ −0.14 (2.74) (0.35) 6.20∗∗∗ 0.33 (1.68) (0.40) 7.82∗∗∗ −0.60 (2.81) (0.41)
0.09
1.98∗∗ 0.35∗ (0.96) (0.21) 5.58∗∗∗ −0.03 (1.63) (0.47) 1.49∗∗ −0.27 (0.74) (0.26) 2.51∗∗ 0.10 (1.24) (0.21) 0.86 0.46 (0.93) (0.28)
0.13
0.45∗∗ (0.18) 0.46 (0.48) −0.05 (0.23) 0.39∗ (0.23) 0.51∗∗ (0.22)
0.06 0.01 0.00 0.07 0.08
0.13 0.04 0.05 0.20 0.06 0.14 0.14
0.08 0.22 0.33 0.32
0.07 0.03 0.17 0.09
Surprise, Expected & Reversal β
γ
δ
R2
2.20∗∗ 0.48∗∗ −3.36 (1.04) (0.23) (5.58) 1.71 −0.78 −7.56 (1.97) (0.61) (9.79) 0.84 0.38 1.57 (1.41) (0.48) (2.62) 3.57∗∗∗ 0.18 −1.20 (0.87) (0.19) (2.37) 2.40 0.13 −3.81 (1.59) (0.37) (2.55) ∗∗ 3.66 0.66 −14.80∗∗∗ (1.77) (0.53) (3.97) ∗∗∗ 3.36 0.25 −7.33∗∗ (1.08) (0.25) (3.41)
0.14
3.46 1.27 (5.49) (0.90) 2.25∗ 0.33 (1.27) (0.42) 6.37∗∗ −0.15 (2.75) (0.36) 6.27∗∗∗ 0.39 (1.66) (0.39) 7.93∗∗∗ −0.63 (2.81) (0.42)
6.80 (5.66) 2.69 (1.87) 1.04 (2.46) −7.03∗∗ (3.50) 27.28∗∗∗ (7.61)
0.09
1.96∗∗ 0.33 (0.95) (0.21) 5.78∗∗∗ 0.14 (1.56) (0.46) 1.54∗∗ −0.22 (0.71) (0.27) 2.51∗∗ 0.10 (1.24) (0.21) 0.93 0.51∗ (0.94) (0.28)
2.57∗ (1.52) −20.11∗∗∗ (4.14) −5.58∗∗∗ (1.48) 0.07 (2.76) −6.32∗∗∗ (1.19)
0.14
0.04 0.05 0.20 0.07 0.20 0.17
0.08 0.22 0.34 0.33
0.11 0.05 0.17 0.12
Note: The table shows the results from regressions of the daily change in realized volatilities during the 60-minute window starting 10 minutes before the FOMC announcement [excluding the first 5 minutes immediately following the announcement] on Federal funds rate changes (equation (A.8)), on surprises and expected rate changes (equation (A.9)), and on surprises and expected rate changes allowing for different effects of ‘reversal’ decisions (equation (A.10)). The models are estimated for the realized volatilities of the individual constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks.
32
Figure A.5: Estimate of surprise coefficient for individual stock volatilities 20
umber of stocks
15
10
5
0 0.41
1.31
2.21
3.11
4.01
4.91
5.81
6.71
7.61
8.51
Average beta in bucket
Note: The figure shows a histogram of the estimates of the coefficient of the absolute surprise in the target rate change in (A.10), estimated using individual stock’s realized volatility during the 60-minute window starting 10 minutes before the FOMC announcement [excluding the first five minutes immediately following the announcement].
33
34 5.25∗∗∗ 28.65∗∗ (0.88) (11.88) 1.99∗∗∗ (0.64)
1.13 (5.18) −5.67 (21.16) 3.60 (9.03) −0.69 (5.59) 2.34 (4.83) 14.86∗ (7.62) −0.32 (6.99) 10.48 (8.26) 12.64∗ (7.45)
9.62∗∗∗ (3.36)
8.39 (12.24)
16.16∗∗∗ (3.99) 5.16∗ (3.03)
12.78∗∗∗ (3.05) 9.58∗∗ (4.87)
15.59∗∗∗ (4.55) 9.72∗∗ (4.90) 2.20 (4.97)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
18.45∗∗ (7.91)
18.67∗∗ (8.43)
27.70∗∗∗ (9.28)
15.59∗∗ (6.14)
15.93∗∗∗ (5.33)
2.10 (1.73)
4.11∗ (2.39)
1.16 (1.56)
4.71∗∗ (2.36)
3.43∗∗∗ (1.27)
3.39∗∗∗ (1.06)
3.24 (2.04)
−1.82 (2.58)
2.46∗∗ (1.16)
2.30∗∗ (1.16)
2.78∗∗ (1.20)
β2
0.19
0.22
R2
−5.49 (5.48)
3.52 (8.91)
−5.14 (8.63)
−0.95 (4.16)
−0.85 (2.13)
1.44 (2.64)
8.94 (6.79)
−4.88 (41.87)
0.15
0.26
0.17
0.23
0.21
0.24
0.28
0.17
6.78∗∗∗ 0.22 (2.16)
4.08 (3.39)
1.76 (3.68)
δ
0.48
0.15
0.03
0.19
0.04
0.01
0.07
0.29
0.01
0.05
0.02
α1 = α2
0.95
0.66
0.22
0.88
0.71
0.29
0.16
0.03
0.68
0.26
0.22
β1 = β2
0.61
0.31
0.10
0.29
0.04
0.02
0.17
0.08
0.01
0.12
0.05
α1 = α2 β1 = β2
Note: The table shows the results from the regression of the daily change in 60-minute realized volatility [excluding the first five minutes immediately following the announcement] on absolute surprises in Federal funds rate changes allowing for different effects of positive and negative surprises, and for different effects of ‘reversal’ decisions (equation (A.11)). The model is estimated for the volatilities of the individual constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. Negative and positive surprises occur in 26 and 28 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
3.28∗∗∗ (0.75)
5.09∗∗∗ (1.05)
3.96∗∗∗ (0.65)
4.84∗∗∗ (0.87)
24.11∗∗∗ (8.68)
18.51 (19.23)
6.22∗∗ (2.52) 6.74∗∗∗ (1.38)
16.77∗∗∗ (5.40)
2.99∗∗∗ (0.56)
20.01∗∗ (7.93)
Cons. Staples (11)
3.97∗∗∗ (0.91)
2.20 (6.93)
9.15∗∗ (3.77)
20.37∗∗∗ (6.01)
Cons. Discr. (15)
4.53∗∗∗ (0.75)
α2
3.94 (4.94)
β1
10.44∗∗∗ (2.64)
α1
All stocks (100)
α0
Wald tests
Table A.14: Asymmetric response of realized volatility to positive and negative surprises
Table A.15: Asymmetric response of individual realized volatilities to positive and negative surprises
α0
α1
β1
α2
β2
δ
R2
Wald tests α1 = α2 α1 = α2 β1 = β2 β1 = β2
Cons. Discr. AOL BDK CCU DIS EK F GM HD HET LTD MAY MCD OMX RSH TOY
5.25 51.19∗∗ (12.47) (23.10) 7.63 −0.20 (6.73) (11.38) 5.22 1.54 (5.26) (12.26) 20.99∗∗∗−20.09∗ (6.01) (11.07) 17.72∗ −7.82 (10.39) (12.26) 11.75 −5.19 (7.78) (16.93) 12.99∗∗ −4.63 (6.55) (10.90) 6.24 20.49∗ (5.69) (10.75) 20.43∗∗ −20.28 (9.49) (15.85) 10.71 −15.09 (7.08) (21.02) 6.92 −2.62 (5.70) (11.81) −1.34 26.48∗∗ (6.28) (10.47) 6.33 −0.03 (4.07) (9.81) 5.88 7.90 (9.12) (13.49) 0.58 1.42 (11.41) (14.85)
2.34∗ 102.61∗∗∗−4.22 14.59 0.26 (1.41) (32.61) (4.59) (20.60) 3.03∗∗∗ 6.25 0.03 7.47∗ 0.10 (1.09) (9.48) (1.96) (4.20) 4.47 3.53 4.92 −5.64∗ 0.07 (2.72) (28.49) (4.21) (3.22) 6.29∗∗∗ 9.39 1.82 12.15∗∗∗0.28 (2.24) (9.80) (1.21) (3.40) ∗∗∗ ∗ 5.64 9.14 4.33 −6.39 0.18 (1.30) (13.23) (2.55) (5.98) 8.00 17.68 1.45 0.86 0.22 (5.05) (13.87) (2.23) (1.32) 3.03∗∗ 0.18 3.54∗∗ 10.46∗∗∗0.12 (1.37) (10.80) (1.73) (3.12) 3.01 36.69∗∗∗ 4.92∗∗ −0.72 0.30 (1.85) (11.70) (2.37) (6.03) ∗∗ 3.75 1.81 1.17 10.67∗∗ 0.09 (1.57) (12.85) (2.50) (4.76) 2.29 22.32 2.62 2.61 0.09 (2.99) (15.69) (2.26) (3.57) 5.34∗∗∗ 25.08∗∗ 2.08 −12.67∗∗ 0.27 (1.76) (12.50) (1.41) (5.92) 2.35∗∗∗ 25.95∗∗∗ 2.18∗ 8.38∗∗∗0.32 (0.83) (9.04) (1.21) (1.03) 1.16 12.88 3.88 1.12 0.17 (1.52) (8.82) (2.55) (1.89) 4.81∗∗∗ 17.24 1.02 20.41∗∗ 0.17 (1.76) (15.50) (2.23) (9.10) 4.09∗∗ 9.38 4.74 −2.16 0.13 (1.89) (15.43) (2.90) (11.36)
14.65 −15.15 (13.21) (15.78) 12.20∗∗ 5.75 (5.22) (13.60) 10.53∗∗ 5.80 (4.98) (9.37) 3.63 18.35 (6.07) (12.91) 9.06∗ 5.58 (4.90) (7.73)
3.55∗∗∗ 16.66 0.93 −2.05 0.08 (1.24) (15.05) (1.30) (7.29) 1.14 11.14 3.39 8.05∗∗∗0.13 (1.51) (12.68) (2.13) (1.49) 1.92∗∗ 9.19 1.23 12.96∗∗∗0.19 (0.97) (9.05) (1.86) (4.21) 5.11∗∗∗ 14.11 6.53∗∗ −0.57 0.31 (1.02) (11.49) (3.18) (2.69) ∗∗∗ 1.35 38.89 −0.74 14.51∗∗∗0.28 (0.91) (14.24) (1.98) (3.23)
0.15
0.17
0.32
0.57
0.18
0.39
0.95
0.93
0.96
0.01
0.08
0.05
0.11
0.65
0.23
0.23
0.23
0.46
0.69
0.82
0.84
0.24
0.53
0.11
0.15
0.39
0.36
0.12
0.93
0.08
0.07
0.15
0.18
0.96
0.91
0.98
0.28
0.36
0.08
0.56
0.18
0.39
0.57
0.85
0.73
0.00
0.15
0.02
0.75
0.39
0.17
0.76
0.74
0.94
0.78
0.67
0.91
0.02
0.34
0.05
Cons. Staples AVP BUD CL CPB G
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35
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α0 HNZ KO MO PEP SLE WMT
α1
2.28 3.50 (5.64) (8.10) 0.72 6.66 (5.07) (7.54) 10.47∗∗ −7.58 (5.29) (8.92) 13.79∗∗∗−12.34 (5.12) (10.67) 16.40∗∗ −10.21 (7.76) (10.46) 12.09∗∗ 12.06 (5.59) (10.33)
β1
α2
2.32∗∗∗ 13.24 (0.57) (8.16) 3.91∗∗∗ 25.80∗∗∗ (0.49) (7.80) ∗∗ 2.77 26.10∗∗ (1.17) (11.94) 4.57∗∗∗ 6.12 (1.75) (7.33) 2.67∗∗∗ 2.67 (0.72) (10.92) 3.62∗∗∗ 20.58∗∗ (1.00) (10.07)
β2 2.73∗ (1.57) 3.41 (2.11) 1.88 (3.00) 3.53∗∗∗ (0.90) 1.38 (2.00) 2.82 (3.46)
δ
R
2
12.32∗∗∗0.25 (4.64) 17.24∗∗∗0.51 (3.30) −2.31 0.18 (3.71) 5.25∗∗ 0.22 (2.62) 4.14∗∗ 0.07 (2.06) 5.08 0.22 (3.22)
Wald tests α1 = α2 α1 = α2 β1 = β2 β1 = β2 0.24
0.81
0.37
0.02
0.82
0.02
0.01
0.78
0.01
0.08
0.60
0.19
0.22
0.55
0.45
0.48
0.83
0.74
0.39
0.98
0.61
0.85
0.31
0.60
0.20
0.00
0.01
0.76
0.63
0.89
0.01
0.00
0.01
0.00
0.00
0.00
0.14
0.51
0.33
0.27
0.87
0.36
0.37
0.26
0.49
0.42
0.30
0.58
0.25
0.39
0.49
0.04
0.61
0.08
0.04
0.12
0.11
0.04
0.28
0.10
0.91
0.23
0.42
Energy BHI EP HAL SLB WMB XOM
12.49 −16.56 (11.14) (15.42) 7.61 −10.46 (7.18) (13.36) −5.15 19.57∗ (6.65) (11.56) 4.90 21.99∗∗ (5.49) (10.45) 19.05∗∗∗−36.74∗∗ (7.39) (14.93) 11.44∗∗ −11.84 (5.69) (8.83)
4.77∗∗ −5.38 4.67 1.99 0.09 (2.04) (13.42) (3.11) (4.63) 8.81∗∗∗−23.27 −7.89 −5.01 0.03 (0.77) (66.02) (16.58) (10.83) 4.29∗∗∗ 41.23∗∗∗−5.65∗ −7.70 0.21 (1.10) (15.40) (3.13) (7.87) 1.17 18.24∗ 2.45 −6.73∗∗∗0.15 (1.55) (9.95) (2.12) (1.29) 11.24∗∗∗ 57.73 −5.91 −11.36∗∗∗0.17 (3.83) (35.84) (4.52) (3.09) 7.01∗∗∗ 22.52∗∗ 1.39 −0.50 0.39 (0.89) (9.20) (1.25) (6.37)
14.09∗∗ 2.21 (6.21) (9.65) −4.02 30.10∗∗ (9.58) (13.31) 13.31∗∗∗ 8.84 (4.08) (10.49) 12.86∗ 9.62 (7.40) (17.30) 14.44∗∗∗ 19.85 (5.51) (14.57) 26.56∗∗∗ −4.59 (7.15) (12.86) 11.39∗∗ −9.57 (4.45) (10.11) 14.01∗∗ −2.09 (5.96) (13.95) 28.15∗∗∗ 10.15 (6.00) (17.60)
6.02∗∗∗ 18.69∗ (1.58) (10.48) 2.82∗∗∗ 17.70 (0.92) (11.46) 7.71∗∗∗ 20.66∗∗ (1.85) (9.80) 4.82∗∗ 23.88∗∗ (2.12) (10.85) 6.20∗∗∗ 39.70∗∗∗ (2.02) (11.90) 4.62∗∗∗ 26.29∗∗ (1.72) (12.58) 5.82∗∗∗ 15.56∗ (1.77) (9.14) 10.69∗∗∗ 34.43∗∗ (3.63) (13.79) 6.31∗∗∗ 12.48 (2.12) (11.95)
Financials AIG ALL AXP BAC C GS HIG JPM LEH
4.47∗∗ (1.78) 2.47 (1.87) 4.12 (2.60) 1.47 (2.38) 3.21 (2.84) 2.82 (3.13) 1.42 (2.24) 5.12 (3.68) 2.62 (2.20)
1.49 0.31 (4.26) −2.31 0.19 (2.12) −1.80 0.32 (12.93) 1.57 0.16 (2.60) 9.56 0.28 (6.23) 35.24∗∗∗0.32 (3.62) 6.16∗∗∗0.25 (1.79) −3.65 0.38 (10.85) 11.52 0.17 (22.57)
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36
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α0 MER MWD ONE USB WFC
α1
β1
α2
22.15∗∗∗ −0.41 9.55∗∗∗ 26.41∗∗ (5.43) (13.48) (1.26) (10.96) 14.70 10.31 10.92∗∗∗ 52.73∗∗∗ (9.42) (18.91) (2.07) (16.53) 24.70∗∗∗−32.04 9.35∗∗∗ 14.77 (6.88) (21.74) (2.13) (15.12) 19.80∗∗∗ 3.43 5.12∗∗∗ 7.45 (4.40) (13.79) (1.13) (11.59) 14.17∗∗ 4.52 4.39 26.70∗∗ (5.87) (16.06) (2.83) (11.44)
β2 4.86∗ (2.89) 2.88 (2.66) 2.74 (3.17) 4.88 (3.78) 2.30 (2.43)
δ
R
2
22.38∗ 0.41 (11.51) 7.03 0.36 (9.52) 22.04∗∗∗0.33 (3.30) 8.97 0.21 (10.02) 7.01∗∗∗0.17 (2.41)
Wald tests α1 = α2 α1 = α2 β1 = β2 β1 = β2 0.09
0.14
0.16
0.05
0.02
0.05
0.06
0.09
0.14
0.81
0.95
0.97
0.21
0.58
0.43
0.97
0.64
0.78
0.61
0.77
0.55
0.00
0.00
0.00
0.56
0.38
0.67
0.17
0.44
0.39
0.01
0.37
0.02
0.20
0.99
0.27
0.23
0.90
0.33
0.80
0.66
0.73
0.01
0.07
0.04
0.03
0.13
0.10
0.66
0.52
0.81
0.34
0.09
0.20
0.43
0.42
0.68
0.12
0.13
0.23
0.18
0.64
0.35
Health Care AMGN BAX BMY CI HCA JNJ MDT MEDI MRK PFE
−8.44 27.09∗ (9.44) (15.24) 5.12 0.31 (5.47) (9.64) 14.67∗∗ −21.91∗∗ (6.98) (10.71) 6.49 −9.87 (4.95) (11.64) 17.28∗∗∗−14.85 (5.00) (10.87) 2.37 5.31 (5.59) (8.39) 3.97 6.14 (5.15) (10.23) −6.47 4.58 (13.93) (24.07) 6.18 7.86 (4.35) (7.21) 10.39∗∗ −11.53 (4.17) (9.73)
5.29∗∗∗ 27.66∗∗ 7.36∗ (1.44) (13.62) (4.20) 2.63 5.58 3.39∗∗ (2.10) (8.59) (1.47) 5.90∗∗∗ 16.43 −1.72 (1.64) (10.51) (1.08) 5.85∗∗ −1.99 2.83 (2.37) (9.98) (2.48) 2.01 −0.06 0.56 (1.63) (6.86) (0.95) 3.07∗∗ 29.15∗∗∗ 1.20 (1.27) (8.76) (1.65) 2.72∗∗∗ 22.21∗∗ 2.70 (1.03) (10.40) (2.27) 8.78∗∗∗ 34.61∗ 9.54∗ (2.61) (20.55) (5.22) 4.85∗∗∗ 10.17 5.66∗∗∗ (0.63) (8.26) (1.71) 7.30∗∗∗ 15.58∗∗ 2.40∗ (2.38) (7.59) (1.34)
1.47 0.35 (3.44) 1.33 0.15 (1.73) 1.38 0.20 (2.51) 1.74 0.22 (4.14) 19.54∗∗ 0.09 (8.85) −0.46 0.25 (1.14) 1.52 0.18 (5.02) −7.95 0.20 (6.05) −3.81 0.40 (3.93) −0.33 0.38 (1.48)
23.16∗∗∗−18.63∗ (6.02) (10.75) 13.33∗∗∗ 10.67 (5.16) (9.99) 19.95 −8.51 (12.17) (19.97) 12.05 5.24 (9.98) (12.54) 3.64 −11.53 (5.19) (9.83) 6.31 15.62 (4.26) (9.91)
5.29∗∗∗ 9.25 (1.32) (10.98) 1.80 5.37 (1.51) (10.10) 8.36∗∗ 9.86 (3.49) (16.52) 2.88∗ 13.18 (1.75) (11.88) 4.29∗∗∗ 4.54 (1.27) (8.10) 6.20∗∗∗ 31.25∗∗∗ (1.99) (8.59)
2.69 0.16 (1.78) −8.54∗∗ 0.11 (3.89) −0.02 0.22 (1.62) −5.36 0.09 (7.45) 0.79 0.13 (3.30) −1.02 0.44 (1.52)
Industrials BA BNI DAL FDX GD GE
0.45 (2.90) 4.01 (3.04) 1.92 (1.55) 0.95 (1.62) 0.73 (1.94) 4.89∗∗ (1.93)
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37
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α0 HON MMM NSC ROK RTN TYC UTX VIAB
α1
β1
α2
β2
6.23 7.07 3.80∗∗ 34.44∗∗∗ 3.48∗ (6.40) (15.34) (1.54) (12.16) (2.03) 13.42∗∗∗ 0.32 3.40∗∗∗ 8.25 3.69∗∗∗ (4.17) (7.71) (0.78) (8.54) (1.43) ∗∗∗ ∗ 22.28 26.17 −1.94 16.78 8.47∗ (7.07) (14.11) (1.24) (15.63) (4.43) 14.67 −9.38 5.31∗∗∗ 6.76 4.25∗∗∗ (9.27) (13.81) (1.90) (14.09) (1.60) 3.28 19.93∗∗ −0.25 10.79 4.39∗∗∗ (6.20) (7.91) (1.65) (9.18) (0.96) 12.66∗ −5.93 6.15∗∗∗ 30.67 −0.32 (6.90) (12.39) (1.36) (24.16) (3.43) 15.87∗∗∗ −2.03 5.02∗∗∗ 10.09 6.83 (6.13) (10.38) (1.62) (11.95) (4.94) 12.05 3.82 5.08∗∗∗ 26.97∗∗ 4.22∗∗∗ (7.62) (11.42) (1.53) (11.51) (1.52)
δ
R
2
−0.84 0.21 (6.07) 0.98 0.22 (1.02) 2.60 0.22 (4.08) 5.89∗∗∗0.18 (1.04) −9.84∗∗ 0.28 (4.11) 0.14 0.10 (7.50) −3.89 0.22 (3.54) 4.53∗∗ 0.33 (2.01)
Wald tests α1 = α2 α1 = α2 β1 = β2 β1 = β2 0.11
0.90
0.11
0.42
0.86
0.48
0.61
0.02
0.03
0.27
0.67
0.45
0.28
0.01
0.04
0.15
0.08
0.21
0.37
0.73
0.27
0.06
0.69
0.10
0.57
0.55
0.80
0.14
0.34
0.34
0.17
0.52
0.38
0.50
0.65
0.79
0.92
0.75
0.95
0.33
0.80
0.34
0.74
0.15
0.06
0.19
0.40
0.42
0.17
0.53
0.35
0.34
0.95
0.46
0.47
0.60
0.77
0.67
0.51
0.80
0.42
0.01
0.02
IT CSC CSCO EMC HPQ IBM INTC LU MSFT NSM ORCL TXN UIS XRX
13.60∗ 9.47 −0.51 1.10 1.66 8.59∗∗ 0.04 (7.52) (12.84) (1.77) (12.62) (3.12) (3.74) 4.56 20.06 6.95∗∗ 48.09∗∗∗ 2.05 6.11∗∗ 0.26 (6.65) (14.79) (3.32) (15.28) (3.98) (2.62) 20.65∗∗∗ 1.00 10.06∗∗∗ 29.27∗ 6.53 −10.60 0.31 (7.12) (16.60) (2.02) (15.97) (5.01) (7.66) 15.43∗ −2.70 7.21∗∗∗ 10.55 5.50∗∗ −1.82 0.18 (8.67) (18.44) (2.67) (13.89) (2.68) (5.13) ∗∗ ∗∗∗ ∗∗ 4.93 23.70 2.72 22.61 3.68 11.46 0.29 (4.61) (9.42) (0.99) (9.35) (2.89) (7.60) 17.19∗∗∗ 13.45 5.99∗∗∗ 29.32∗∗ 7.18 −7.19 0.29 (5.72) (11.10) (1.82) (14.41) (4.44) (5.04) 1.43 12.82 5.39∗∗∗ 21.40 16.84∗∗ −4.29 0.32 (7.27) (10.51) (1.20) (25.05) (7.81) (7.29) 7.65 19.97∗∗ 3.74∗∗∗ 34.65∗∗∗ 1.00 −1.05 0.26 (6.16) (9.38) (1.20) (10.58) (3.01) (1.77) ∗∗∗ ∗∗∗ 7.81 21.91 4.83 51.96 3.04 1.12 0.20 (10.18) (17.90) (1.44) (19.09) (2.45) (2.11) −6.18 44.30∗∗∗ 5.79∗∗∗ 60.96∗∗∗ 5.47 −5.77∗∗ 0.38 (8.73) (11.76) (1.52) (17.63) (4.69) (2.66) 27.53∗∗∗ −2.71 7.34∗∗ 10.59 4.63 −4.81 0.18 (8.15) (17.80) (3.58) (12.63) (3.77) (4.82) −8.66 25.89 4.32 19.14 6.82∗∗∗−11.70∗∗∗0.21 (10.00) (16.23) (3.38) (13.99) (1.73) (3.89) ∗∗ ∗ ∗ 18.60 6.06 2.29 20.42 −3.20 7.59 0.06 (8.38) (15.17) (1.22) (15.33) (1.85) (4.93)
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38
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α0 Materials AA ATI BCC DD DOW IP WY Telecomm. NXTL S SBC T VZ Utilities AEP AES ETR EXC SO
α1
β1
α2
β2
δ
R
2
13.80∗∗∗ 2.97 (4.64) (7.91) 50.14∗∗∗−18.78 (12.82) (18.07) 4.34 −1.12 (5.03) (13.38) 11.50∗ 10.45 (6.28) (7.97) 13.04 0.04 (10.72) (14.86) 7.68 17.45∗ (5.32) (10.43) 8.63∗ −13.23 (4.90) (12.59)
4.01∗∗∗ 14.33 0.18 −1.53 0.14 (0.95) (9.50) (1.61) (5.34) 2.03 −13.16 −0.97 −10.86 0.02 (2.16) (19.52) (3.39) (11.94) 1.01 21.24 2.18 1.57 0.14 (1.74) (13.07) (2.66) (1.86) 3.38∗∗∗ 18.26∗ 2.71∗ −1.17 0.24 (0.86) (10.34) (1.58) (2.22) 4.05∗∗∗ 39.36∗∗ −1.99 −3.22 0.17 (1.19) (17.41) (2.24) (2.92) 2.96∗∗ 27.38∗∗ 5.18∗ −14.78∗∗∗0.24 (1.47) (11.94) (2.86) (2.78) 5.56∗∗∗ 23.26∗∗∗ 0.80 −5.98∗∗ 0.26 (1.37) (8.50) (1.69) (2.60)
25.36∗∗ (10.39) 2.73 (6.16) 16.53∗∗ (7.55) 4.02 (4.50) −0.01 (9.78)
0.23 33.43 11.46 (4.01) (32.23) (10.65) 4.96∗∗∗ 42.93∗∗∗−3.16∗∗ (1.31) (10.95) (1.40) 7.72∗∗ 23.21 1.92 (3.82) (14.12) (1.36) 7.50∗∗∗ 27.77∗∗ 4.00 (1.60) (10.90) (2.80) 5.83 15.91 6.30∗∗∗ (4.64) (12.49) (1.79)
35.46 (24.05) −0.42 (12.86) −6.53 (15.89) 4.27 (9.66) 19.59 (15.70)
10.99∗∗ 4.29 (4.92) (9.06) −11.95 34.30 (20.33) (23.61) 5.58∗ 12.98 (3.35) (9.57) 7.30∗∗∗ 0.94 (2.11) (7.79) −0.95 10.69 (4.75) (9.65)
5.40 0.15 (5.97) 4.64∗∗ 0.22 (1.92) 1.57 0.26 (2.06) −5.94 0.38 (3.88) 11.94 0.31 (9.55)
1.63∗∗ 8.70 3.52∗ 2.54 0.16 (0.83) (8.71) (1.89) (2.43) 3.87∗ 43.77 3.70 −21.24∗∗∗0.16 (2.28) (28.15) (3.50) (4.20) 0.74 9.37 −0.26 −6.16∗∗∗0.08 (1.02) (6.37) (1.32) (1.11) 3.13∗ 9.84 1.45 3.65 0.19 (1.63) (7.80) (2.50) (6.66) 0.59 20.58∗∗∗ 2.09 −6.22∗∗∗0.18 (1.20) (6.95) (1.36) (1.26)
Wald tests α1 = α2 α1 = α2 β1 = β2 β1 = β2 0.27
0.04
0.12
0.77
0.46
0.76
0.19
0.71
0.10
0.41
0.71
0.69
0.02
0.02
0.04
0.48
0.49
0.37
0.01
0.03
0.03
0.96
0.33
0.43
0.00
0.00
0.00
0.10
0.15
0.25
0.07
0.28
0.20
0.80
0.93
0.96
0.67
0.36
0.27
0.68
0.97
0.82
0.73
0.55
0.62
0.40
0.57
0.70
0.31
0.41
0.13
Note: The table shows the results from regressions of the daily change in realized volatilities during the 60-minute window starting 10 minutes before the FOMC announcement [excluding the first 5 minutes immediately following the announcement] on absolute surprises in Federal funds rate changes allowing for different effects of positive and negative surprises, and for different effects of reversal decisions (equation (A.11)). The model is estimated for realized volatilities of the individual constituents of the S&P100 index for the 77 FOMC meetings between May 1997 and October 2006. Negative and positive surprises occur in 26 and 28 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
39
Figure A.6: Asymmetric effects of positive and negative surprises for individual stock volatilities 45 alpha_1
40
alpha_2
umber of stocks
35 30 25 20 15 10 5 0 -29.77
-15.84
-1.90
12.03
25.97
39.90
53.84
67.77
81.71
95.64
Average alpha in bucket
(a) Intercepts α1 and α2 45 beta_1
40
beta_2
umber of stocks
35 30 25 20 15 10 5 0 -6.65
-4.18
-1.71
0.77
3.24
5.71
8.18
10.66
13.13
15.60
Average beta in bucket
(b) Surprise coefficients β1 and β2 Note: The figure shows histograms of the coefficient estimates in the regression (A.11) allowing for asymmetric effects of positive and negative surprises in the target rate change, estimated using individual stock’s realized volatility during the 60-minute window starting 10 minutes before the FOMC announcement [excluding the first five minutes immediately following the announcement].
40
41
5.08∗∗ (2.03) 3.25∗∗ (1.64) 4.04∗∗∗ (1.54) −7.79 (7.63) 8.28∗∗∗ (2.20) 7.06∗∗∗ (1.52) 4.45∗∗∗ (1.46) 8.56∗∗ (3.58) 4.68∗∗ (2.17) 10.39∗∗ (4.15) 3.24 (2.03)
14.58∗∗∗ (3.38) 13.76∗∗∗ (3.72) 13.35∗∗∗ (3.29) 24.15∗ (13.16) 16.77∗∗∗ (4.40) 3.32 (2.87) 18.33∗∗∗ (3.31) 15.30∗∗∗ (5.52) 17.33∗∗∗ (3.92) 14.43∗∗ (5.96) 8.66∗ (5.14)
25.47∗∗ (11.84) 18.13∗ (10.80) 20.64∗∗ (8.29) −32.16 (133.06) 38.03∗∗ (16.22) 15.77∗∗ (7.67) 15.84∗∗∗ (5.46) 56.59∗∗∗ (14.78) 34.27∗∗∗ (9.13) 60.53∗∗∗ (13.65) 10.08 (8.73)
α1 3.38∗∗∗ (1.23) 3.62∗∗∗ (1.11) 2.24∗∗∗ (0.78) 7.30 (8.42) 3.86∗ (2.17) 3.63∗∗∗ (1.26) 4.21∗∗∗ (0.62) 2.43 (1.63) 1.68∗ (0.96) 1.44 (1.78) 3.04∗∗∗ (1.02)
β1 17.26∗ (9.27) 28.88∗ (15.10) 11.18∗∗∗ (3.99) 4.20 (14.10) 14.39 (10.78) 15.85∗∗∗ (4.07) 15.63∗∗∗ (3.92) 18.58∗∗∗ (5.52) 25.76 (18.56) 10.75 (6.66) 18.08∗∗∗ (6.17)
α2 6.69∗∗∗ (2.17) 2.88 (3.60) 5.91∗∗∗ (1.88) 7.31 (11.54) 15.01∗∗∗ (2.54) 4.20∗∗ (1.74) 5.87∗∗ (2.38) 8.80∗∗∗ (1.96) 2.01 (4.06) 9.94∗∗∗ (2.59) 0.85 (3.35)
β2 0.79 (3.31) 3.33 (3.12) 6.61∗∗∗ (1.50) −8.28 (38.70) 6.22 (5.15) 0.26 (2.96) −0.52 (2.23) −2.23 (3.77) −6.40 (8.29) 5.09 (8.74) −5.60 (5.67)
δ
0.14
0.26
0.18
0.25
0.21
0.25
0.32
0.18
0.22
0.19
0.23
R2
0.45
0.00
0.67
0.02
0.98
0.99
0.22
0.79
0.30
0.56
0.58
α1 = α2
0.73
0.00
0.83
0.02
0.73
0.93
0.00
0.94
0.20
0.79
0.36
α1 = α2 β1 = β2
where ∆RVit is the difference between realized volatility during the 60-minute window starting 10 minutes before the target rate decision is made public [excluding the first five minutes immediately following the announcement] and during the same window on the day before for stock i, St is the surprise as defined in (A.1), ∆F Ft is the actual target rate change, D(A) is a dummy variable taking the value 1 if the event A is true and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for the volatilities of the individual constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. Target rate decreases and increases occur in 12 and 23 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
0.53
0.01
0.94
0.01
0.50
0.79
0.00
1.00
0.07
0.85
0.18
β1 = β2
∆RVit = (α0i + β0i |St |)D(∆F Ft = 0) + (α1i + β1i |St |)D(∆F Ft < 0) + (α2i + β2i |St |)D(∆F Ft > 0) + δ|St |REVt + εit ,
Note: The table shows results for the regression
Utilities (5)
Telecomm. (5)
Materials (7)
IT (13)
Industrials (14)
Health Care (10)
Financials (14)
Energy (6)
Cons. Staples (11)
Cons. Discr. (15)
All stocks (100)
β0
α0
Wald tests
Table A.16: Asymmetric response of realized volatility to surprises following target rate decreases and increases
42
0.06 (2.72) −0.77 (2.31) 0.02 (3.73) −6.34 (8.26) 4.93 (7.74) −5.72 (5.48)
21.60∗∗∗ 7.70∗∗∗ 55.43∗∗∗ −0.27 (3.58) (1.19) (13.46) (1.55)
2.08∗ (1.17)
26.18∗∗∗ (9.18)
17.61∗∗∗ 4.70∗∗∗ (2.41) (0.48) 19.47∗∗∗ 6.34∗∗∗ 93.62∗∗∗ −1.49 (3.55) (1.12) (24.78) (2.15) 0.97 (1.97)
29.73∗∗∗ (9.07)
8.53∗∗∗ 5.36∗∗∗ (2.25) (0.59)
19.79∗∗∗ 3.47∗∗∗ 29.58∗∗∗ (3.37) (0.80) (10.66) 17.98∗∗∗ 7.31∗∗∗ 85.60∗∗∗ −3.36 (4.07) (0.71) (17.34) (2.07) 10.87∗∗∗ 3.27∗∗∗ 10.89 (3.52) (0.93) (14.45)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
1.93 (1.64)
0.12
0.28
0.12
0.24
0.18
0.24
0.30
0.11
6.86∗∗∗ 0.19 (1.67)
0.18
0.20
R2
0.48
0.00
0.24
0.00
0.04
0.00
0.00
0.71
0.10
0.06
0.00
β1 = β2
0.50
0.00
0.50
0.00
0.06
0.00
0.00
0.68
0.15
0.04
0.00
α1 = α2 β1 = β2
where ∆RVit is the difference between realized volatility during the 60-minute window starting 10 minutes before the target rate decision is made public [excluding the first five minutes immediately following the announcement] and during the same window on the day before for stock i, St is the surprise as defined in (A.1), N BERt is a dummy variable taking the value 1 for announcements during recessions, defined according to the NBER turning point dates, and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for the volatilities of the individual constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. Six announcement occur during the NBER-defined recession between March 2001 and November 2001. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
1.00
0.00
0.38
0.00
0.37
0.02
0.02
0.89
0.42
0.43
0.02
α1 = α2
∆RVit = (α1i + β1i St )(1 − N BERt ) + (α2i + β2i St )N BERt + δi St REVt + εit ,
Note: The table shows results for the regression
7.33 (6.82)
2.91 (2.99)
9.99∗∗∗ 4.11∗∗∗ 6.90 (3.57) (1.12) (22.23)
Energy (6)
0.93 (0.97)
−5.80 (6.02)
1.02 (1.47)
14.24∗∗∗ 3.61∗∗∗ 27.16∗ (2.34) (0.57) (15.90)
Cons. Staples (11)
3.66 (2.84)
1.31 (1.57)
14.62∗∗∗ 4.48∗∗∗ 27.05∗ (3.11) (0.63) (15.30)
1.40 (2.30)
δ
Cons. Discr. (15)
β2 0.63 (1.07)
α2
16.06∗∗∗ 5.18∗∗∗ 40.92∗∗∗ (2.30) (0.63) (10.70)
β1
All stocks (100)
α1
Wald tests
Table A.17: Asymmetric response of realized volatility to surprises in expansions and recessions
43
23.34∗∗∗ 4.88∗∗∗ (6.81) (1.56) 14.35∗∗∗ 3.92∗∗∗ (5.48) (1.00) 29.78∗∗∗ 3.13∗∗∗ (6.30) (0.75) 39.18∗∗∗ 4.24∗∗∗ −0.49 (8.78) (1.17) (4.05) 28.43∗∗∗ 2.05∗∗ (6.93) (0.85) 31.14∗∗∗ 3.75∗∗∗ (9.09) (1.06)
18.82∗∗∗ 10.50∗∗∗ (4.31) (1.89) 7.35∗∗∗ 5.56∗∗∗ (2.75) (1.21) 14.60∗∗∗ 4.82∗∗∗ (2.49) (1.25) 15.71∗∗∗ 7.63∗∗∗ (4.39) (2.08) 16.54∗∗∗ 4.14∗∗ (3.76) (1.91) 12.83∗∗∗ 11.08∗∗∗ (4.70) (2.02) 11.47∗∗∗ 3.07∗∗ (3.80) (1.28)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
3.01∗∗∗ −5.72 (1.02) (5.37)
2.95 (8.67)
−5.23 (8.31)
0.02 (2.42)
0.25 (2.94)
5.15 (6.94)
−9.53 (39.70)
0.12
0.25
0.14
0.22
0.18
0.21
0.28
0.13
6.51∗∗∗ 0.21 (1.89)
0.16
0.20
R2
0.97
0.00
0.32
0.15
0.24
0.29
0.02
0.89
0.04
0.43
0.13
β1 = β2
0.99
0.01
0.30
0.05
0.08
0.46
0.05
0.94
0.04
0.22
0.17
α1 = α2 β1 = β2
where ∆RVit is the difference between realized volatility during the 60-minute window starting 10 minutes before the target rate decision is made public [excluding the first five minutes immediately following the announcement] and during the same window on the day before for stock i, St is the surprise as defined in (A.1), EM Pt is a dummy variable taking the value 1 for announcements during recessions and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. A recession is defined to start (end) when there are three consecutive monthly declines (increases) in nonfarm payroll employment. The model is estimated for the volatilities of the individual constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. 20 announcement occur during the recession period between March 2001 and August 2003. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
0.91
0.07
0.13
0.02
0.03
0.25
0.57
0.71
0.02
0.08
0.08
α1 = α2
∆RVit = (α1i + β1i St )(1 − EM Pt ) + (α2i + β2i St )EM Pt + δi St REVt + εit ,
Note: Note: The table shows results for the regression
10.43 (8.31)
4.04 (2.82)
Financials (14)
4.80 (20.49)
13.25 (10.75)
Energy (6)
2.90 (7.96)
24.36∗∗∗ 1.97∗∗∗ (5.20) (0.65)
10.91∗∗∗ 4.64∗∗∗ (2.65) (1.16)
Cons. Staples (11)
4.22 (3.22)
24.19∗∗∗ 3.05∗∗∗ (6.23) (0.91)
11.77∗∗∗ 4.41∗∗∗ (3.48) (1.45)
0.96 (3.45)
δ
Cons. Discr. (15)
β2
24.63∗∗∗ 3.46∗∗∗ (5.80) (0.94)
α2
13.59∗∗∗ 6.04∗∗∗ (2.69) (1.40)
β1
All stocks (100)
α1
Wald tests
Table A.18: Asymmetric response of realized volatility to surprises in expansions and recessions
Table A.19: Mean change of bipower variation following FOMC announcements All
Rate Rate increase decrease (23 obs) (12 obs)
(77 obs)
Positive Negative surprise surprise (28 obs) (26 obs)
All stocks (100 stocks)
33.69∗∗∗ (56.82)
31.31∗∗∗ 63.82∗∗∗ (44.39) (65.66)
44.04∗∗∗ 40.88∗∗∗ (64.08) (57.87)
Consumer Discretionary (15)
30.53∗∗∗ (51.91)
30.64∗∗∗ 56.96∗∗∗ (51.05) (61.45)
40.42∗∗∗ 35.66∗∗∗ (50.13) (60.64)
Consumer Staples (11)
27.88∗∗∗ (41.17)
24.90∗∗∗ 50.95∗∗∗ (37.56) (48.27)
38.97∗∗∗ 30.91∗∗∗ (41.52) (43.17)
Energy (6)
22.61∗∗∗ (96.08)
17.99∗∗∗ 39.00∗∗∗ (38.49) (60.16)
25.12∗∗∗ 30.77∗∗∗ (143.51) (54.28)
Financials (14)
48.26∗∗∗ (60.71)
50.33∗∗∗ 90.12∗∗∗ (57.32) (74.81)
60.21∗∗∗ 61.34∗∗∗ (56.92) (73.03)
Health Care (10)
23.61∗∗∗ (46.87)
22.68∗∗∗ 50.09∗∗∗ (31.18) (52.47)
33.47∗∗∗ 28.43∗∗∗ (48.89) (48.49)
Industrials (14)
32.66∗∗∗ (46.14)
28.17∗∗∗ 54.73∗∗∗ (38.33) (55.21)
41.60∗∗∗ 38.26∗∗∗ (46.54) (48.57)
IT (13)
43.15∗∗∗ (64.58)
37.61∗∗∗ 91.06∗∗∗ (46.06) (81.72)
57.11∗∗∗ 54.37∗∗∗ (72.96) (64.16)
Materials (7)
30.44∗∗∗ (44.37)
29.68∗∗∗ 53.54∗∗∗ (34.75) (50.78)
40.43∗∗∗ 33.96∗∗∗ (46.60) (44.06)
Telecommunications (5)
41.03∗∗∗ (68.12)
29.19∗∗∗ 86.87∗∗∗ (44.58) (79.09)
56.25∗∗∗ 48.71∗∗∗ (80.82) (67.04)
Utilities (5)
21.70∗∗∗ (42.73)
23.83∗∗∗ 35.90∗∗∗ (28.03) (41.07)
28.93∗∗∗ 28.30∗∗∗ (40.82) (37.81)
Note: The table reports the average daily change in the square root of bipower variation in basis points during 60-minute windows (from 10 minutes before until 50 minutes after) around FOMC announcements on days of the 77 scheduled FOMC meetings from May 1997 to October 2006, with standard deviations given in parentheses. The table shows equally weighted averages across the individual constituents of the S&P100 index aggregated to the market level (all stocks) and sector level. Columns headed ‘Rate increase (decrease)’ show average volatilities following the announcement of an increase (decrease) of the Federal funds target rate. Columns headed ‘Positive (negative) surprise’ show average volatilities following a positive (negative) surprise in the target rate change, where the surprise is computed as the difference between the closing price of the nearby Fed funds futures contract one day before the announcement and on the announcement day itself, as given in (A.1). The superscripts ∗∗∗ ∗∗ , , and ∗ indicate significance at the 1%, 5% and 10% level, respectively.
44
Table A.20: Response of bipower variation to actual target rate changes and surprises Rate Changes β
R2
Surprises & Expected β
γ
R2
Surprise, Expected & Reversal β
γ
δ
R2 0.20
All stocks (100)
0.74∗∗∗ 0.07 (0.11)
4.83∗∗∗ (0.78)
0.25 0.18 (0.17)
4.81∗∗∗ (0.77)
0.21 (0.17)
5.34 (3.64)
Cons. Discr. (15)
0.74∗∗∗ 0.07 (0.11)
3.86∗∗∗ (0.69)
0.35∗∗ 0.15 (0.15)
3.86∗∗∗ (0.68)
0.29∗ (0.16)
9.06∗∗∗ 0.18 (2.98)
Cons. Staples (11)
0.46∗∗∗ 0.04 (0.10)
3.98∗∗∗ (0.74)
0.09 0.15 (0.17)
3.90∗∗∗ (0.67)
0.00 (0.17)
9.84∗∗∗ 0.21 (1.52)
Energy (6)
0.57∗∗ 0.01 (0.23)
3.84 (2.40)
0.01 0.10 (0.65)
3.83 (2.41)
0.01 −1.32 (0.66) (44.85)
Financials (14)
1.12∗∗∗ 0.10 (0.12)
6.78∗∗∗ (1.52)
0.42 0.23 (0.29)
6.74∗∗∗ (1.48)
0.28 (0.29)
15.87∗∗ 0.30 (6.36)
Health Care (10)
0.65∗∗∗ 0.07 (0.14)
4.61∗∗∗ (0.80)
0.23 0.21 (0.16)
4.60∗∗∗ (0.81)
0.22 (0.16)
1.45 (3.22)
0.21
Industrials (14)
0.41∗∗∗ 0.03 (0.15)
4.98∗∗∗ −0.13 0.17 (0.52) (0.15)
4.97∗∗∗ −0.14 (0.52) (0.15)
0.61 (2.52)
0.18
IT (13)
1.15∗∗∗ 0.10 (0.16)
6.37∗∗∗ (1.23)
0.57 0.21 (0.35)
6.34∗∗∗ (1.22)
0.55 (0.36)
2.48 (5.05)
0.23
Materials (7)
0.63∗∗∗ 0.07 (0.16)
3.07∗∗∗ (0.79)
0.33∗ 0.13 (0.20)
3.07∗∗∗ (0.81)
0.35∗ −1.66 (0.20) (7.67)
0.14
Telecomm. (5)
0.91∗∗∗ 0.07 (0.20)
6.43∗∗∗ (1.06)
0.25 0.23 (0.37)
6.44∗∗∗ (1.06)
0.20 (0.38)
11.40 (9.85)
0.25
Utilities (5)
0.46∗∗∗ 0.06 (0.18)
2.24∗∗∗ (0.73)
0.27 0.13 (0.17)
2.29∗∗∗ (0.72)
0.31∗ −5.09 (0.17) (4.97)
0.15
0.10
Note: The table shows the results from regressions of the daily change in the square root of 60-minute bipower variation on absolute Federal funds rate changes (equation (A.8)), on absolute surprises and absolute expected rate changes (equation (A.9)), and on absolute surprises and absolute expected rate changes allowing for different effects of ‘reversal’ decisions (equation (A.10)). The models are estimated for the volatilities of the individual constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks.
45
46
7.53∗∗∗ 24.41∗∗ (1.44) (10.15) 5.14∗∗∗ (1.04)
6.84∗∗∗ 29.39∗∗ (0.80) (12.39) 1.96∗∗∗ (0.70)
19.05∗∗∗ 7.97 (4.47) (10.16) −0.15 (6.10) 4.49 (5.50) 13.59∗ (7.69) 5.84 (6.89) 8.05 (8.81) 15.14∗ (7.84)
10.12 (13.28)
6.74∗∗ (3.16)
14.62∗∗∗ (3.07)
13.30∗∗∗ (4.68)
12.80∗∗∗ (4.54)
12.30∗∗ (5.63) 5.50 (5.34)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
3.68∗∗∗ (0.76)
6.58∗∗∗ (0.98)
4.60∗∗∗ (0.77)
15.48 (19.86)
5.80∗∗ (2.72)
18.69∗∗ (7.53)
20.91∗∗ (8.25)
24.00∗∗ (9.97)
15.45∗∗∗ (5.78)
13.72∗∗ (5.71)
16.05∗∗∗ (5.46)
3.65∗∗∗ (0.66)
1.86 (1.61)
4.36∗ (2.35)
2.24 (1.46)
6.04∗∗ (3.02)
3.61∗∗∗ (1.11)
3.93∗∗∗ (1.29)
4.38 (2.75)
−1.67 (2.97)
3.13∗∗ (1.30)
2.72∗∗ (1.08)
3.42∗∗∗ (1.31)
β2 0.24
R2
0.18
−4.19 (5.19)
7.41 (9.73)
−1.44 (8.38)
3.16 (5.61)
−0.03 (2.26)
3.52 (2.99)
0.19
0.30
0.19
0.24
0.22
0.24
16.87∗∗∗ 0.32 (6.27)
2.87 (46.47)
9.48∗∗∗ 0.25 (1.80)
9.54∗∗∗ 0.22 (3.26)
5.83 (4.16)
δ
0.65
0.10
0.08
0.33
0.10
0.05
0.20
0.43
0.04
0.08
0.06
α1 = α2
0.95
0.32
0.38
0.87
0.47
0.47
0.31
0.06
0.72
0.18
0.24
β1 = β2
0.85
0.26
0.20
0.55
0.23
0.10
0.43
0.17
0.06
0.21
0.18
α1 = α2 β1 = β2
Note: The table shows the results from the regression of the daily change in the square root of 60-minute bipower variation on absolute surprises in Federal funds rate changes allowing for different effects of positive and negative surprises, and for different effects of ‘reversal’ decisions (equation (A.11)). The model is estimated for the volatilities of the individual constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. Negative and positive surprises occur in 26 and 28 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
−3.42 (23.27)
3.00 (5.26)
11.11∗∗∗ (2.93)
19.47∗∗∗ (7.03)
Cons. Staples (11)
4.52∗∗∗ (0.77)
4.79 (6.90)
11.79∗∗∗ (3.67)
19.56∗∗∗ (6.14)
Cons. Discr. (15)
5.19∗∗∗ (0.74)
α2
5.91 (5.56)
β1
12.50∗∗∗ (2.67)
α1
All stocks (100)
α0
Wald tests
Table A.21: Asymmetric response of bipower variation to positive and negative surprises
47
6.37∗∗∗ (1.92) 4.77∗∗∗ (1.83) 5.56∗∗∗ (1.38) −8.39 (7.68) 10.25∗∗∗ (2.80) 8.65∗∗∗ (1.45) 5.74∗∗∗ (1.50) 9.95∗∗ (4.28) 6.80∗∗∗ (1.55) 10.48∗∗ (4.17) 2.90 (2.11)
16.20∗∗∗ (3.42) 15.58∗∗∗ (3.64) 14.57∗∗∗ (2.92) 25.23∗ (14.14) 20.16∗∗∗ (4.94) 4.00 (2.85) 20.41∗∗∗ (3.35) 17.49∗∗∗ (5.68) 13.82∗∗∗ (3.80) 17.09∗∗∗ (6.46) 11.40∗∗ (5.34)
35.83∗∗∗ (13.84) 26.78∗∗ (11.75) 29.80∗∗∗ (9.54) −1.12 (148.16) 57.09∗∗∗ (19.64) 20.85∗∗ (9.65) 19.75∗∗∗ (6.36) 65.80∗∗∗ (19.27) 40.95∗∗∗ (10.66) 67.65∗∗∗ (16.35) 19.08∗∗ (8.49)
α1 3.41∗∗ (1.35) 3.63∗∗∗ (1.16) 2.21∗∗∗ (0.86) 5.26 (9.35) 3.65 (2.43) 3.73∗∗∗ (1.39) 4.52∗∗∗ (0.77) 3.26∗ (1.81) 1.80∗ (1.06) 2.21 (2.12) 2.55∗∗∗ (0.96)
β1 18.97∗∗ (8.96) 32.51∗∗∗ (12.61) 10.91∗∗∗ (4.00) 6.39 (15.34) 16.53 (12.97) 16.28∗∗∗ (4.51) 16.61∗∗∗ (3.82) 20.43∗∗∗ (5.53) 27.31 (18.72) 11.64∗ (6.84) 21.76∗∗∗ (5.96)
α2 6.95∗∗∗ (2.13) 3.20 (3.31) 6.55∗∗∗ (1.87) 6.67 (12.75) 15.31∗∗∗ (3.37) 3.15∗ (1.62) 6.31∗∗∗ (1.95) 9.26∗∗∗ (2.16) 2.23 (4.03) 10.80∗∗∗ (0.59) 2.13 (3.40)
β2 4.65 (3.77) 8.26∗∗ (3.24) 9.19∗∗∗ (1.57) 0.23 (43.04) 14.04∗∗ (5.50) 2.03 (3.13) 0.23 (2.17) 1.57 (5.74) −3.23 (7.90) 9.83 (9.37) −5.71 (5.12)
δ
0.17
0.30
0.18
0.28
0.24
0.25
0.35
0.18
0.28
0.23
0.26
R2
0.80
0.00
0.52
0.02
0.67
0.67
0.08
0.96
0.07
0.74
0.30
α1 = α2
0.97
0.00
0.60
0.05
0.69
0.64
0.02
0.99
0.08
0.93
0.37
α1 = α2 β1 = β2
where ∆BP Vit is the difference between the square root of bipower variation during the 60-minute window starting 10 minutes before the target rate decision is made public and during the same window on the day before for stock i, St is the surprise as defined in (A.1), ∆F Ft is the actual target rate change, D(A) is a dummy variable taking the value 1 if the event A is true and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for the volatilities of the individual constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. Target rate decreases and increases occur in 12 and 23 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
0.91
0.00
0.92
0.03
0.39
0.79
0.00
0.93
0.04
0.90
0.16
β1 = β2
∆BP Vit = (α0i + β0i |St |)D(∆F Ft = 0) + (α1i + β1i |St |)D(∆F Ft < 0) + (α2i + β2i |St |)D(∆F Ft > 0) + δ|St |REVt + εit ,
Note: The table shows results for the regression
Utilities (5)
Telecomm. (5)
Materials (7)
IT (13)
Industrials (14)
Health Care (10)
Financials (14)
Energy (6)
Cons. Staples (11)
Cons. Discr. (15)
All stocks (100)
β0
α0
Wald tests
Table A.22: Asymmetric response of bipower variation to surprises following target rate decreases and increases
48
2.01 (3.09) −0.29 (2.46) 4.34 (5.22) −1.06 (7.99) 10.23 (8.54) −4.55 (4.94)
25.18∗∗∗ 8.74∗∗∗ 76.97∗∗∗ −0.76 (4.01) (1.62) (17.70) (1.87) 0.97 (1.39) 1.93∗ (1.15)
19.56∗∗∗ 5.38∗∗∗ 33.73∗∗∗ (2.41) (0.38) (11.09) 21.49∗∗∗ 7.33∗∗∗ 110.44∗∗∗ −0.84 (3.52) (1.30) (32.95) (2.92) 1.32 (1.85)
9.44∗∗∗ 5.68∗∗∗ 36.90∗∗ (2.41) (0.73) (15.49)
19.45∗∗∗ 4.11∗∗∗ 39.23∗∗∗ (3.48) (0.84) (12.85) 19.14∗∗∗ 8.38∗∗∗ 95.77∗∗∗ −3.14 (4.11) (0.70) (17.58) (2.08) 14.70∗∗∗ 3.27∗∗∗ 17.32 (3.45) (0.90) (13.26)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
0.14
0.31
0.14
0.27
0.20
0.23
0.34
0.10
9.45∗∗∗ 0.23 (1.50)
0.85
0.00
0.14
0.01
0.21
0.08
0.00
0.77
0.36
0.20
0.02
α1 = α2
0.40
0.00
0.17
0.01
0.00
0.00
0.00
0.86
0.07
0.04
0.00
β1 = β2
0.52
0.00
0.31
0.02
0.00
0.01
0.00
0.72
0.12
0.05
0.00
α1 = α2 β1 = β2
where ∆BP Vit is the difference between the square root of bipower variation during the 60-minute window starting 10 minutes before the target rate decision is made public and during the same window on the day before for stock i, St is the surprise as defined in (A.1), N BERt is a dummy variable taking the value 1 for announcements during recessions, defined according to the NBER turning point dates, and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for the volatilities of the individual constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. Six announcement occur during the NBER-defined recession between March 2001 and November 2001. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
∆BP Vit = (α1i + β1i St )(1 − N BERt ) + (α2i + β2i St )N BERt + δi St REVt + εit ,
Note: The table shows results for the regression
15.59∗∗ (6.47)
3.33 (2.92)
11.44∗∗∗ 3.88∗∗∗ 5.15 (3.27) (0.91) (21.69)
Energy (6)
1.73 (1.58)
2.79 (5.81)
1.19 (1.65)
15.83∗∗∗ 4.45∗∗∗ 31.89∗ (2.34) (0.74) (17.32)
Cons. Staples (11)
0.23
R2
9.16∗∗∗ 0.21 (3.03)
1.20 (1.75)
17.44∗∗∗ 4.99∗∗∗ 40.08∗∗ (2.99) (0.58) (17.24)
5.70∗∗ (2.71)
δ
Cons. Discr. (15)
β2 0.68 (1.35)
α2
18.10∗∗∗ 5.84∗∗∗ 51.77∗∗∗ (2.40) (0.75) (14.35)
β1
All stocks (100)
α1
Wald tests
Table A.23: Asymmetric response of bipower variation to surprises in expansions and recessions
49
0.24 (2.47) 3.46 (5.59)
27.65∗∗∗ 5.52∗∗∗ (7.61) (1.67) 15.35∗∗ (6.15) 31.20∗∗∗ 3.61∗∗∗ (5.94) (0.83)
32.02∗∗∗ 4.84∗∗∗ (9.40) (1.26) 15.78∗∗ (7.77)
8.61∗∗∗ 5.82∗∗∗ (2.88) (1.31) 16.66∗∗∗ 5.75∗∗∗ (2.50) (0.96) 17.82∗∗∗ 8.98∗∗∗ 41.75∗∗∗ 5.51∗∗∗ (4.41) (2.51) (10.03) (1.26) 27.62∗∗∗ 2.76∗∗∗ −0.74 (7.08) (0.83) (7.88)
21.41∗∗∗ 12.88∗∗∗ (4.86) (2.45)
16.06∗∗∗ 5.61∗∗∗ (3.73) (1.55) 14.79∗∗∗ 11.82∗∗∗ (4.82) (0.00) 15.09∗∗∗ 2.66∗ (3.77) (1.48)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
0.15
0.27
0.17
0.24
0.21
0.22
0.34
0.14
0.93
0.10
0.22
0.09
0.37
0.01
0.99
0.00
0.19
0.06
β1 = β2
0.98
.
0.21
0.08
0.07
0.56
0.04
0.87
0.00
0.11
0.11
α1 = α2 β1 = β2
where ∆BP Vit is the difference between the square root of bipower variation during the 60-minute window starting 10 minutes before the target rate decision is made public and during the same window on the day before for stock i, St is the surprise as defined in (A.1), EM Pt is a dummy variable taking the value 1 for announcements during recessions and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. A recession is defined to start (end) when there are three consecutive monthly declines (increases) in nonfarm payroll employment. The model is estimated for the volatilities of the individual constituents of the S&P100 index following the 77 scheduled FOMC meetings between May 1997 and October 2006. Average coefficient estimates and R2 values are shown for the market (all stocks) and sectors. 20 announcement occur during the recession period between March 2001 and August 2003. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
0.94
0.10
0.15
0.03
0.02
0.32
0.49
0.64
0.02
0.04
0.08
α1 = α2
∆BP Vit = (α1i + β1i St )(1 − EM Pt ) + (α2i + β2i St )EM Pt + δi St REVt + εit ,
Note: Note: The table shows results for the regression
7.52 (9.29)
1.68 (3.22)
12.27∗ (6.67)
−2.08 (43.96)
8.35∗∗∗ 0.26 (1.64)
2.82∗∗∗ −4.44 (0.99) (4.98)
4.31∗∗∗ (1.07)
3.82 (2.75)
Financials (14)
3.93 (19.18)
14.46 (11.64)
Energy (6)
3.67 (8.86)
25.84∗∗∗ 2.33∗∗∗ (5.38) (0.65)
11.59∗∗∗ 6.43∗∗∗ (2.43) (1.05)
Cons. Staples (11)
0.23
R2
9.00∗∗∗ 0.21 (3.31)
27.91∗∗∗ 3.46∗∗∗ (5.68) (0.81)
14.21∗∗∗ 5.61∗∗∗ (3.44) (1.44)
4.61 (3.92)
δ
Cons. Discr. (15)
β2
26.79∗∗∗ 4.01∗∗∗ (5.82) (0.94)
α2
15.40∗∗∗ 7.24∗∗∗ (2.80) (1.47)
β1
All stocks (100)
α1
Wald tests
Table A.24: Asymmetric response of bipower variation to surprises in expansions and recessions
Average standardized cross-product of returns
Figure A.7: Correlation changes around FOMC announcements 0.1 Daily change - positive surprises
0.08
Daily change - negative surprises Daily change - no surprises
0.06
0.04
0.02
0
-0.02 -10
-5
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
Event time Note: The figure shows the average change in cross-products of returns taken over all possible pairs of S&P100 constituents in five-minute intervals around the announcement of the Federal funds target rate decision, relative to the pre-announcement day. The cross-product of returns of stocks i and j during the k-th interval is normalized with their realized volatilities over the window from 15 minutes before until 75 minutes after the announcement time, that is (Rit,k Rjt,k )/(RVit RVjt ), where RVit and RVjt are computed according to (A.6) with l = −3 and u = 14. The label ’5’ on the horizontal axis indicates the average return in the first 5 minutes after the announcement. The graph is based on the 77 scheduled FOMC meetings between May 1997 and October 2006, which are split into 23 ’No surprise’, 28 ’Positive surprise’ and 26 ’Negative surprise’ cases.
50
Table A.25: Mean level of intra-sector realized correlations following FOMC announcements All
Rate Rate increase decrease (23 obs) (12 obs)
(77 obs)
Positive Negative surprise surprise (28 obs) (26 obs)
All stocks (100 stocks)
0.35∗∗∗ (0.30)
0.40∗∗∗ (0.28)
0.34∗∗∗ (0.30)
0.39∗∗∗ (0.29)
0.31∗∗∗ (0.30)
Consumer Discretionary (15)
0.27∗∗∗ (0.30)
0.31∗∗∗ (0.30)
0.28∗∗∗ (0.31)
0.33∗∗∗ (0.29)
0.24∗∗∗ (0.30)
Consumer Staples (11)
0.33∗∗∗ (0.30)
0.42∗∗∗ (0.29)
0.34∗∗∗ (0.28)
0.38∗∗∗ (0.28)
0.27∗∗∗ (0.31)
Energy (6)
0.33∗∗∗ (0.29)
0.40∗∗∗ (0.27)
0.30∗∗∗ (0.29)
0.37∗∗∗ (0.27)
0.29∗∗∗ (0.30)
Financials (14)
0.44∗∗∗ (0.27)
0.50∗∗∗ (0.24)
0.43∗∗∗ (0.28)
0.50∗∗∗ (0.24)
0.40∗∗∗ (0.28)
Health Care (10)
0.33∗∗∗ (0.29)
0.37∗∗∗ (0.27)
0.29∗∗∗ (0.31)
0.37∗∗∗ (0.28)
0.31∗∗∗ (0.29)
Industrials (14)
0.34∗∗∗ (0.30)
0.39∗∗∗ (0.30)
0.33∗∗∗ (0.31)
0.36∗∗∗ (0.31)
0.32∗∗∗ (0.30)
IT (13)
0.37∗∗∗ (0.29)
0.41∗∗∗ (0.27)
0.36∗∗∗ (0.29)
0.41∗∗∗ (0.28)
0.35∗∗∗ (0.28)
Materials (7)
0.32∗∗∗ (0.31)
0.37∗∗∗ (0.27)
0.38∗∗∗ (0.27)
0.38∗∗∗ (0.27)
0.27∗∗∗ (0.30)
Telecommunications (5)
0.36∗∗∗ (0.30)
0.38∗∗∗ (0.26)
0.41∗∗∗ (0.30)
0.42∗∗∗ (0.27)
0.29∗∗∗ (0.30)
Utilities (5)
0.35∗∗∗ (0.30)
0.46∗∗∗ (0.25)
0.35∗∗∗ (0.30)
0.41∗∗∗ (0.27)
0.32∗∗∗ (0.30)
Note: The table reports the average intra-sector realized correlations in basis points for 60minute windows (from 10 minutes before until 50 minutes after) around FOMC announcements [excluding the first five minutes immediately following the announcement] on days of the 77 scheduled FOMC meetings from May 1997 to October 2006, with standard deviations given in parentheses. Columns headed ‘Rate increase (decrease)’ show average correlations following the announcement of an increase (decrease) of the Federal funds target rate. Columns headed ‘Positive (negative) surprise’ show average correlations following a positive (negative) surprise in the target rate change, where the surprise is computed as the difference between the closing price of the nearby Fed funds futures contract one day before the announcement and on the announcement day itself. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate significance at the 1%, 5% and 10% level, respectively.
51
Table A.26: Mean level of inter-sector realized correlations following FOMC announcements All
Rate Rate increase decrease (23 obs) (12 obs)
(77 obs)
Positive Negative surprise surprise (28 obs) (26 obs)
All stocks (100 stocks)
0.31∗∗∗ (0.30)
0.36∗∗∗ (0.28)
0.32∗∗∗ (0.30)
0.35∗∗∗ (0.29)
0.28∗∗∗ (0.30)
Consumer Discretionary (15)
0.29∗∗∗ (0.30)
0.34∗∗∗ (0.29)
0.31∗∗∗ (0.30)
0.34∗∗∗ (0.29)
0.26∗∗∗ (0.30)
Consumer Staples (11)
0.31∗∗∗ (0.30)
0.37∗∗∗ (0.29)
0.31∗∗∗ (0.30)
0.35∗∗∗ (0.29)
0.27∗∗∗ (0.30)
Energy (6)
0.27∗∗∗ (0.29)
0.30∗∗∗ (0.28)
0.30∗∗∗ (0.28)
0.31∗∗∗ (0.28)
0.26∗∗∗ (0.30)
Financials (14)
0.35∗∗∗ (0.29)
0.39∗∗∗ (0.28)
0.35∗∗∗ (0.29)
0.39∗∗∗ (0.28)
0.31∗∗∗ (0.29)
Health Care (10)
0.31∗∗∗ (0.30)
0.36∗∗∗ (0.28)
0.29∗∗∗ (0.31)
0.35∗∗∗ (0.29)
0.29∗∗∗ (0.29)
Industrials (14)
0.32∗∗∗ (0.30)
0.37∗∗∗ (0.29)
0.32∗∗∗ (0.30)
0.36∗∗∗ (0.29)
0.30∗∗∗ (0.30)
IT (13)
0.32∗∗∗ (0.29)
0.37∗∗∗ (0.28)
0.32∗∗∗ (0.29)
0.36∗∗∗ (0.28)
0.29∗∗∗ (0.29)
Materials (7)
0.30∗∗∗ (0.30)
0.35∗∗∗ (0.29)
0.31∗∗∗ (0.30)
0.35∗∗∗ (0.29)
0.27∗∗∗ (0.31)
Telecommunications (5)
0.32∗∗∗ (0.30)
0.36∗∗∗ (0.27)
0.37∗∗∗ (0.29)
0.38∗∗∗ (0.28)
0.28∗∗∗ (0.30)
Utilities (5)
0.28∗∗∗ (0.30)
0.34∗∗∗ (0.28)
0.29∗∗∗ (0.29)
0.32∗∗∗ (0.28)
0.26∗∗∗ (0.30)
Note: The table reports the average inter-sector realized correlations in basis points for 60minute windows (from 10 minutes before until 50 minutes after) around FOMC announcements [excluding the first five minutes immediately following the announcement] on days of the 77 scheduled FOMC meetings from May 1997 to October 2006, with standard deviations given in parentheses. Columns headed ‘Rate increase (decrease)’ show average correlations following the announcement of an increase (decrease) of the Federal funds target rate. Columns headed ‘Positive (negative) surprise’ show average correlations following a positive (negative) surprise in the target rate change, where the surprise is computed as the difference between the closing price of the nearby Fed funds futures contract one day before the announcement and on the announcement day itself. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate significance at the 1%, 5% and 10% level, respectively.
52
Table A.27: Mean change of intra-sector realized correlations following FOMC announcements All
Rate Rate increase decrease (23 obs) (12 obs)
(77 obs)
Positive Negative surprise surprise (28 obs) (26 obs)
All stocks (100 stocks)
0.12∗∗∗ (0.39)
0.17∗∗∗ (0.38)
0.14∗∗∗ (0.39)
0.15∗∗∗ (0.37)
0.12∗∗∗ (0.40)
Consumer Discretionary (15)
0.11∗∗∗ (0.40)
0.16∗∗∗ (0.41)
0.15∗∗∗ (0.42)
0.14∗∗∗ (0.39)
0.12∗∗∗ (0.41)
Consumer Staples (11)
0.11∗∗∗ (0.39)
0.17∗∗∗ (0.38)
0.17∗∗∗ (0.38)
0.14∗∗∗ (0.37)
0.10∗∗∗ (0.42)
Energy (6)
0.05∗∗ (0.34)
0.04 (0.33)
0.06 (0.36)
0.08∗∗ (0.35)
0.01∗∗ (0.33)
Financials (14)
0.15∗∗∗ (0.36)
0.23∗∗∗ (0.35)
0.16∗∗∗ (0.38)
0.18∗∗∗ (0.34)
0.15∗∗∗ (0.38)
Health Care (10)
0.12∗∗∗ (0.39)
0.17∗∗∗ (0.39)
0.16∗∗∗ (0.39)
0.17∗∗∗ (0.38)
0.11∗∗∗ (0.40)
Industrials (14)
0.10∗∗∗ (0.39)
0.13∗∗∗ (0.38)
0.15∗∗∗ (0.39)
0.12∗∗∗ (0.38)
0.14∗∗∗ (0.38)
IT (13)
0.12∗∗∗ (0.38)
0.19∗∗∗ (0.37)
0.08∗∗∗ (0.36)
0.16∗∗∗ (0.36)
0.11∗∗∗ (0.39)
Materials (7)
0.08∗∗∗ (0.40)
0.16∗∗∗ (0.39)
0.19∗∗∗ (0.41)
0.11∗∗∗ (0.37)
0.09∗∗∗ (0.43)
Telecommunications (5)
0.15∗∗∗ (0.38)
0.18∗∗∗ (0.36)
0.23∗∗∗ (0.37)
0.21∗∗∗ (0.36)
0.11∗∗∗ (0.39)
Utilities (5)
0.12∗∗∗ (0.41)
0.15∗∗∗ (0.37)
0.14∗∗ (0.46)
0.19∗∗∗ (0.39)
0.09∗∗∗ (0.41)
Note: The table reports the average daily change of intra-sector realized correlations in basis points during 60-minute windows (from 10 minutes before until 50 minutes after) around FOMC announcements [excluding the first five minutes immediately following the announcement] on days of the 77 scheduled FOMC meetings from May 1997 to October 2006, with standard deviations given in parentheses. Columns headed ‘Rate increase (decrease)’ show average correlations following the announcement of an increase (decrease) of the Federal funds target rate. Columns headed ‘Positive (negative) surprise’ show average correlations following a positive (negative) surprise in the target rate change, where the surprise is computed as the difference between the closing price of the nearby Fed funds futures contract one day before the announcement and on the announcement day itself, as given in (A.1). The superscripts ∗∗∗ ∗∗ , , and ∗ indicate significance at the 1%, 5% and 10% level, respectively.
53
Table A.28: Mean change of inter-sector realized correlations following FOMC announcements All
Rate Rate increase decrease (23 obs) (12 obs)
(77 obs)
Positive Negative surprise surprise (28 obs) (26 obs)
All stocks (100 stocks)
0.12∗∗∗ (0.39)
0.16∗∗∗ (0.39)
0.16∗∗∗ (0.39)
0.15∗∗∗ (0.38)
0.12∗∗∗ (0.40)
Consumer Discretionary (15)
0.11∗∗∗ (0.40)
0.16∗∗∗ (0.40)
0.15∗∗∗ (0.39)
0.15∗∗∗ (0.39)
0.11∗∗∗ (0.40)
Consumer Staples (11)
0.11∗∗∗ (0.39)
0.17∗∗∗ (0.39)
0.16∗∗∗ (0.39)
0.15∗∗∗ (0.38)
0.11∗∗∗ (0.41)
Energy (6)
0.10∗∗∗ (0.39)
0.11∗∗∗ (0.39)
0.17∗∗∗ (0.38)
0.13∗∗∗ (0.39)
0.10∗∗∗ (0.38)
Financials (14)
0.13∗∗∗ (0.38)
0.18∗∗∗ (0.39)
0.16∗∗∗ (0.38)
0.16∗∗∗ (0.37)
0.13∗∗∗ (0.40)
Health Care (10)
0.12∗∗∗ (0.39)
0.17∗∗∗ (0.40)
0.15∗∗∗ (0.39)
0.15∗∗∗ (0.39)
0.11∗∗∗ (0.39)
Industrials (14)
0.11∗∗∗ (0.39)
0.15∗∗∗ (0.39)
0.16∗∗∗ (0.39)
0.14∗∗∗ (0.38)
0.12∗∗∗ (0.40)
IT (13)
0.12∗∗∗ (0.39)
0.19∗∗∗ (0.39)
0.13∗∗∗ (0.38)
0.16∗∗∗ (0.38)
0.12∗∗∗ (0.39)
Materials (7)
0.11∗∗∗ (0.40)
0.15∗∗∗ (0.41)
0.17∗∗∗ (0.39)
0.13∗∗∗ (0.39)
0.11∗∗∗ (0.41)
Telecommunications (5)
0.13∗∗∗ (0.39)
0.21∗∗∗ (0.40)
0.20∗∗∗ (0.37)
0.18∗∗∗ (0.38)
0.12∗∗∗ (0.40)
Utilities (5)
0.12∗∗∗ (0.41)
0.15∗∗∗ (0.40)
0.19∗∗∗ (0.39)
0.17∗∗∗ (0.40)
0.10∗∗∗ (0.41)
Note: The table reports the average daily change of inter-sector realized correlations in basis points during 60-minute windows (from 10 minutes before until 50 minutes after) around FOMC announcements [excluding the first five minutes immediately following the announcement] on days of the 77 scheduled FOMC meetings from May 1997 to October 2006, with standard deviations given in parentheses. Columns headed ‘Rate increase (decrease)’ show average correlations following the announcement of an increase (decrease) of the Federal funds target rate. Columns headed ‘Positive (negative) surprise’ show average correlations following a positive (negative) surprise in the target rate change, where the surprise is computed as the difference between the closing price of the nearby Fed funds futures contract one day before the announcement and on the announcement day itself, as given in (A.1). The superscripts ∗∗∗ ∗∗ , , and ∗ indicate significance at the 1%, 5% and 10% level, respectively.
54
Table A.29: Response of intra-sector realized correlations to actual target rate changes and surprises Rate Changes β
R2
Surprises & Expected β
γ
R2
Surprise, Expected & Reversal β
γ
δ
R2
All stocks (100)
0.31∗∗∗ 0.03 (0.11)
1.39∗∗∗ (0.50)
0.13 0.05 (0.12)
1.39∗∗∗ (0.49)
0.14 (0.12)
−2.83 (1.96)
0.06
Cons. Discr. (15)
0.35∗∗∗ 0.03 (0.13)
1.82∗∗∗ (0.56)
0.11 0.06 (0.13)
1.83∗∗∗ (0.57)
0.12 (0.14)
−0.91 (2.29)
0.07
Cons. Staples (11)
0.36∗∗∗ 0.03 (0.13)
1.14∗ (0.67)
0.22 0.04 (0.16)
1.14∗ (0.67)
0.22 (0.16)
−0.23 (2.69)
0.05
0.76 (0.62)
−0.16 0.05 (0.21)
0.74 (0.63)
−0.15 (0.22)
−2.60 (9.27)
0.06
Energy (6)
−0.06 (0.17)
0.02
Financials (14)
0.44∗∗∗ 0.04 (0.13)
1.51∗∗ (0.68)
0.22 0.06 (0.16)
1.54∗∗ (0.67)
0.23 (0.16)
−1.51 (1.03)
0.07
Health Care (10)
0.26∗∗ 0.02 (0.13)
1.64∗∗ (0.68)
0.09 0.05 (0.15)
1.64∗∗ (0.67)
0.11 (0.15)
−6.32 (3.96)
0.06
Industrials (14)
0.27∗ (0.15)
0.03
1.74∗∗∗ (0.64)
0.05 0.06 (0.18)
1.74∗∗∗ (0.65)
0.05 (0.18)
0.20 (3.46)
0.07
IT (13)
0.19 (0.12)
0.02
0.32 (0.66)
0.12 0.03 (0.16)
0.35 (0.67)
0.14 (0.16)
Materials (7)
0.53∗∗∗ 0.05 (0.17)
2.02∗∗ (0.90)
0.25 0.07 (0.18)
1.97∗∗∗ (0.71)
0.28∗ −13.88∗∗ (0.15) (5.66)
Telecomm. (5)
0.40∗∗ 0.03 (0.16)
0.97 (0.72)
0.26 0.05 (0.20)
0.88 (0.66)
0.35∗ −31.78∗∗∗ 0.11 (0.18) (8.41)
Utilities (5)
0.21 (0.25)
1.08 (1.65)
0.19 0.04 (0.31)
1.03 (1.65)
0.19 (0.31)
0.02
−2.88∗∗∗ 0.04 (1.00)
−9.09 (10.80)
0.09
0.05
Note: The table shows the results from regressions of the daily change in 60-minute realized correlations [excluding the first five minutes immediately following the announcement] on absolute Federal funds rate changes (equation (A.14)), on absolute surprises and absolute expected rate changes (equation (A.15)), and on absolute surprises and absolute expected rate changes allowing for different effects of ‘reversal’ decisions (equation (A.16)). The models are estimated using the realized correlations between individual stocks belonging to the same sector following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks.
55
Table A.30: Response of inter-sector realized correlations to actual target rate changes and surprises Rate Changes β
R2
Surprises & Expected β
γ
R2
Surprise, Expected & Reversal β
γ
δ
R2
All stocks (100)
0.32∗∗∗ 0.03 (0.10)
1.27∗∗∗ 0.16 0.05 (0.46) (0.11)
1.27∗∗∗ 0.18 (0.45) (0.11)
−4.83∗∗ (1.98)
0.06
Cons. Discr. (15)
0.34∗∗∗ 0.03 (0.11)
1.47∗∗∗ 0.15 0.05 (0.47) (0.10)
1.47∗∗∗ 0.17 (0.48) (0.12)
−4.61∗∗ (1.94)
0.06
Cons. Staples (11)
0.33∗∗∗ 0.03 (0.11)
1.36∗∗∗ 0.16 0.05 (0.50) (0.12)
1.36∗∗∗ 0.17 (0.49) (0.13)
−2.26 (2.13)
0.06
Energy (6)
0.21∗ (0.11)
0.02
1.29∗∗∗ 0.05 0.05 (0.19) (0.08)
1.29∗∗∗ 0.06 (0.26) (0.12)
−8.80∗∗∗ 0.06 (2.44)
Financials (14)
0.32∗∗∗ 0.03 (0.10)
1.37∗∗∗ 0.13 0.05 (0.51) (0.10)
1.38∗∗∗ 0.15 (0.50) (0.11)
−3.34∗∗ (1.35)
0.06
Health Care (10)
0.30∗∗∗ 0.03 (0.10)
1.22∗∗ (0.55)
1.23∗∗ (0.54)
0.17 (0.13)
−4.60∗ (2.39)
0.06
Industrials (14)
0.32∗∗∗ 0.03 (0.11)
1.40∗∗∗ 0.14 0.05 (0.53) (0.13)
1.39∗∗∗ 0.15 (0.52) (0.13)
−3.37 (2.17)
0.06
IT (13)
0.30∗∗∗ 0.03 (0.09)
0.81∗ (0.48)
0.81∗ (0.48)
−3.58∗ (2.03)
0.05
Materials (7)
0.39∗∗∗ 0.03 (0.11)
1.56∗∗∗ 0.18∗ 0.05 (0.51) (0.10)
1.56∗∗∗ 0.21∗∗ −6.54∗∗∗ 0.07 (0.48) (0.10) (2.26)
Telecomm. (5)
0.44∗∗∗ 0.04 (0.11)
1.05∗ (0.59)
0.30∗∗ 0.06 (0.13)
1.04∗ (0.58)
0.34∗∗ −8.85∗∗∗ 0.08 (0.14) (3.05)
Utilities (5)
0.24∗ (0.13)
0.98 (0.72)
0.16 0.04 (0.17)
0.95 (0.71)
0.18 −10.57∗∗∗ 0.05 (0.17) (2.96)
0.02
0.15 0.04 (0.13)
0.19 0.04 (0.12)
0.20∗ (0.12)
Note: The table shows the results from regressions of the daily change in 60-minute realized correlations [excluding the first five minutes immediately following the announcement] on absolute Federal funds rate changes (equation (A.14)), on absolute surprises and absolute expected rate changes (equation (A.15)), and on absolute surprises and absolute expected rate changes allowing for different effects of ‘reversal’ decisions (equation (A.16)). The models are estimated using the realized correlations between individual stocks belonging to different sectors following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. The superscripts ∗∗∗ ∗∗ , , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks.
56
Table A.31: Response of realized correlations to actual target rate changes and surprises
Cons. Discr. - Cons. Discr. Cons. Discr. - Cons. Staples Cons. Discr. - Energy Cons. Discr. - Financials Cons. Discr. - Health Care Cons. Discr. - Industrials Cons. Discr. - IT Cons. Discr. - Materials Cons. Discr. - Telecomm. Cons. Discr. - Utilities Cons. Staples - Cons. Staples Cons. Staples - Energy Cons. Staples - Financials Cons. Staples - Health Care Cons. Staples - Industrials Cons. Staples - IT Cons. Staples - Materials Cons. Staples - Telecomm. Cons. Staples - Utilities Energy - Energy Energy - Financials Energy - Health Care Energy - Industrials Energy - IT Energy - Materials Energy - Telecomm. Energy - Utilities Financials - Financials Financials - Health Care Financials - Industrials Financials - IT Financials - Materials Financials - Telecomm. Financials - Utilities Health Care - Health Care Health Care - Industrials Health Care - IT Health Care - Materials Health Care - Telecomm. Health Care - Utilities Industrials - Industrials Industrials - IT Industrials - Materials Industrials - Telecomm. Industrials - Utilities IT - IT IT - Materials IT - Telecomm. IT - Utilities Materials - Materials Materials - Telecomm. Materials - Utilities Telecomm. - Telecomm. Telecomm. - Utilities Utilities - Utilities
Rate Changes β R2
Surprises & Expected β γ R2
Surprise, Expected & Reversal β γ δ R2
0.35∗∗∗ 0.03 0.34∗∗∗ 0.03 0.25∗ 0.02 0.34∗∗∗ 0.03 0.32∗∗∗ 0.03 0.34∗∗∗ 0.03 0.37∗∗∗ 0.03 0.39∗∗∗ 0.04 0.45∗∗∗ 0.04 0.22 0.02 0.36∗∗∗ 0.03 0.19 0.02 0.34∗∗∗ 0.03 0.36∗∗∗ 0.03 0.33∗∗ 0.03 0.32∗∗∗ 0.03 0.33∗∗∗ 0.03 0.48∗∗∗ 0.04 0.27∗ 0.02 −0.06 0.02 0.11 0.01 0.34∗∗∗ 0.03 0.18 0.02 0.17 0.01 0.31∗ 0.03 0.37∗∗ 0.03 0.13 0.01 0.44∗∗∗ 0.04 0.27∗∗ 0.02 0.33∗∗ 0.03 0.27∗∗∗ 0.02 0.41∗∗∗ 0.03 0.57∗∗∗ 0.06 0.33∗∗ 0.02 0.26∗∗ 0.02 0.31∗∗∗ 0.03 0.18∗ 0.02 0.35∗∗∗ 0.03 0.34∗∗ 0.03 0.29∗∗ 0.02 0.27∗ 0.03 0.28∗∗ 0.02 0.42∗∗∗ 0.04 0.43∗∗∗ 0.04 0.25 0.02 0.19 0.02 0.48∗∗∗ 0.04 0.37∗∗∗ 0.03 0.17 0.02 0.53∗∗∗ 0.05 0.52∗∗∗ 0.05 0.10 0.01 0.40∗∗ 0.03 0.38∗∗ 0.02 0.21 0.02
1.82∗∗∗ 0.11 0.06 1.74∗∗∗ 0.14 0.05 1.55∗∗∗ 0.04 0.05 1.58∗∗∗ 0.12 0.05 1.55∗∗∗ 0.14 0.05 1.59∗∗∗ 0.14 0.05 0.91∗ 0.24∗ 0.04 1.80∗∗∗ 0.15 0.06 1.33∗∗ 0.26∗ 0.06 1.12 0.10 0.04 1.14∗ 0.22 0.04 1.34∗∗∗ 0.03 0.04 1.26∗∗ 0.14 0.04 1.03∗ 0.24∗ 0.05 1.67∗∗∗ 0.13 0.05 0.89∗ 0.21 0.05 1.55∗∗∗ 0.13 0.04 1.13∗ 0.35∗∗ 0.06 1.44 0.15 0.04 0.76 −0.16 0.05 1.53∗∗∗ −0.09 0.04 1.10∗∗∗ 0.24 0.05 1.27∗∗∗ 0.03 0.04 0.73∗ 0.07 0.04 2.03∗∗∗ −0.06∗∗∗ 0.06 0.81∗∗ 0.27 0.05 1.14 0.04 0.04 1.51∗∗ 0.22 0.06 1.31∗∗ 0.09 0.04 1.59∗∗ 0.11 0.05 0.87 0.14 0.04 1.87∗∗∗ 0.16 0.05 1.33∗ 0.37∗∗∗ 0.07 0.87 0.26 0.04 1.64∗∗ 0.09 0.05 1.24∗ 0.16 0.05 0.90∗ 0.08 0.03 1.54∗∗ 0.17 0.05 1.50∗∗ 0.16 0.05 0.65 0.26 0.04 1.74∗∗∗ 0.05 0.06 0.93 0.15 0.04 1.51∗∗∗ 0.25∗ 0.06 1.32∗ 0.26 0.06 1.32∗ 0.15 0.04 0.32 0.12 0.03 0.94∗ 0.36∗∗∗ 0.05 0.04 0.34∗∗∗ 0.04 0.24 0.18 0.03 2.02∗∗ 0.25 0.07 1.19∗ 0.37∗∗∗ 0.06 1.66∗∗ −0.08 0.04 0.97 0.26 0.05 0.34 0.38∗ 0.04 1.08 0.19 0.04
1.83∗∗∗ 0.12 −0.91 0.07 1.74∗∗∗ 0.14 −1.79 0.06 1.52∗∗∗ 0.06 −10.16∗∗ 0.07 1.59∗∗∗ 0.14 −2.38 0.06 1.55∗∗∗ 0.15 −5.43∗∗ 0.06 1.58∗∗∗ 0.14 −3.19 0.07 0.92∗ 0.26∗∗ −2.59 0.05 1.79∗∗∗ 0.18 −8.39∗∗∗ 0.08 1.32∗∗ 0.28∗∗ −7.23∗ 0.08 1.09∗ 0.12 −10.12∗∗∗ 0.05 1.14∗ 0.22 −0.23 0.05 1.33∗∗∗ 0.04 −5.24 0.05 1.28∗∗ 0.15 −0.78 0.05 1.04∗ 0.25∗ −1.27 0.06 1.67∗∗∗ 0.12 0.78 0.07 0.90∗ 0.22 −1.35 0.06 1.56∗∗∗ 0.16 −3.16 0.06 1.12∗ 0.39∗∗ −9.91∗∗ 0.08 1.42 0.17 −8.26∗∗ 0.06 0.74 −0.15 −2.60 0.06 1.58∗∗∗ −0.10∗∗∗ −7.35∗∗∗ 0.06 1.07∗∗∗ 0.27 −11.43∗∗ 0.07 1.25∗∗∗ 0.05 −8.73∗∗ 0.06 ∗ 0.70 0.10 −14.48∗∗∗ 0.05 2.06∗∗∗ −0.05 −1.43 0.09 0.78∗∗ 0.30 −10.92 0.07 1.12 0.04 −5.08 0.06 1.54∗∗ 0.23 −1.51 0.07 1.33∗∗ 0.11 −3.38 0.05 1.60∗∗ 0.12 −0.86 0.06 0.89 0.14 −0.64 0.05 1.86∗∗∗ 0.21∗ −7.28∗∗∗ 0.08 1.35∗ 0.42∗∗∗ −6.40∗ 0.09 0.83 0.29∗ −12.26∗∗∗ 0.06 ∗∗ 1.64 0.11 −6.32 0.06 1.24∗ 0.17 −2.48 0.06 0.91∗ 0.09 −3.45 0.04 1.54∗∗∗ 0.19 −5.70 0.07 1.49∗∗ 0.19 −10.48∗∗ 0.07 0.65 0.28 −6.08 0.05 1.74∗∗∗ 0.05 0.20 0.07 0.93 0.15 −1.56 0.05 1.49∗∗∗ 0.27∗∗ −5.33∗ 0.07 1.30∗ 0.29∗ −9.10∗∗ 0.08 1.29∗ 0.17 −11.64∗∗ 0.05 0.35 0.14 −2.88∗∗∗ 0.04 0.94∗ 0.40∗∗∗ −7.47∗∗ 0.07 0.05 0.36∗∗∗ −3.03 0.05 0.21 0.18 −7.64∗∗ 0.04 1.97∗∗∗ 0.28∗ −13.88∗∗ 0.09 1.17∗ 0.41∗∗∗ −8.02 0.09 1.61∗∗ −0.04 −13.71∗∗ 0.05 0.88 0.35∗ −31.78∗∗∗ 0.11 0.26 0.45∗∗ −28.12∗∗∗ 0.07 1.03 0.19 −9.09 0.05
Note: The table shows the results from regressions of the daily change in 60-minute realized correlations [excluding the first five minutes immediately following the announcement] on absolute Federal funds rate changes (equation (A.14)), on absolute surprises and absolute expected rate changes (equation (A.15)), and on absolute surprises and absolute expected rate changes allowing for different effects of ‘reversal’ decisions (equation (A.16)). The models are estimated using the realized correlations between individual stocks following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks.
Figure A.8: Estimate of surprise coefficient for pairwise realized correlations 120
umber of correlations
100
80
60
40
20
0 -3.01
-2.08
-1.14
-0.21
0.73
1.66
2.60
3.53
4.47
5.40
3.53
4.47
5.40
Average beta in bucket
(a) Intra-industry stock pairs 1800
umber of correlations
1600 1400 1200 1000 800 600 400 200 0 -3.01
-2.08
-1.14
-0.21
0.73
1.66
2.60
Average beta in bucket
(b) Inter-industry stock pairs Note: The figure shows a histogram of the estimates of the coefficient of the absolute surprise in the target rate change in (A.16), estimated using the realized correlations during the 60-minute window starting 10 minutes before the FOMC announcement.
58
59 3.60∗∗∗ (0.60) 2.77∗∗∗ (0.62)
−4.04 (7.55) −4.48 (5.70) −5.17 (6.75) 3.71 (7.68) 1.55 (6.26) −12.11∗ (7.10)
5.10 (5.62)
12.00∗∗∗ (3.66)
9.92∗∗ (4.55)
4.91 (4.22)
8.47∗∗ (4.06)
6.02 (4.47)
16.44∗∗∗ −12.68∗ (5.38) (7.69)
6.10 (8.20)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
0.34 (1.95)
6.74 (6.33)
1.99∗∗∗ (0.60)
8.38 (11.17)
10.59 (7.74)
1.45 (8.21)
14.46∗∗ (5.64)
5.45 (7.73)
8.36 (5.98)
−1.62 (8.30)
−0.24 (5.94)
2.04∗∗ (0.80)
2.71∗∗∗ (0.45)
0.26 (0.74)
2.03∗∗∗ (0.72)
0.11
−4.38 (14.08)
2.52∗ (1.45)
0.10
0.07
0.09
0.09
0.10
0.08
0.08
0.10
0.09
R2
−24.42∗∗∗ 0.14 (8.66)
−9.12 (5.83)
−2.48∗∗ (1.00)
0.25 (4.92)
−3.91 (4.26)
−0.57 (1.14)
0.11 (9.38)
0.43 (3.31)
1.04 (2.69)
−1.43 (2.69)
δ
−0.21 (0.83)
1.68 (1.57)
−0.86 (1.07)
0.68 (0.78)
1.70∗ (0.97)
0.69 (1.37)
1.36 (1.26)
1.77∗ (0.99)
1.12 (1.01)
0.82 (0.81)
β2
0.67
0.00
0.12
0.04
0.70
0.18
0.05
0.76
0.24
0.13
0.08
α1 = α2
0.37
0.00
0.25
0.17
0.18
0.78
0.16
0.45
0.83
0.27
0.19
β1 = β2
0.24
0.01
0.31
0.11
0.25
0.14
0.14
0.42
0.31
0.31
0.22
α1 = α2 β1 = β2
Note: The table shows the results from the regression of the daily change in 60-minute realized correlations [excluding the first five minutes immediately following the announcement] on absolute surprises in Federal funds rate changes allowing for different effects of positive and negative surprises, and for different effects of ‘reversal’ decisions (equation (A.17)). The model is estimated using the realized correlations between individual stocks belonging to the same sector for the 77 FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. Negative and positive surprises occur in 26 and 28 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
1.99 (15.18)
0.88 (0.68)
−9.14 (7.09)
11.81∗∗∗ (3.75)
Cons. Staples (11)
7.83 (5.94)
2.37∗∗∗ (0.52)
−1.51 (6.06)
5.59 (4.18)
Cons. Discr. (15)
7.20 (4.85)
α2
2.03∗∗∗ (0.42)
−2.43 (5.44)
8.27∗∗ (3.31)
All stocks (100)
β1
α1
α0
Wald tests
Table A.32: Asymmetric response of intra-sector realized correlations to positive and negative surprises
60
2.07∗∗∗ 7.07 (0.43) (5.21) 1.89∗∗∗ 2.26 (0.50) (5.28) 1.41∗∗∗ 3.40 (0.45) (6.01) 2.00∗∗∗ 6.69 (0.44) (5.08) 1.75∗∗∗ 5.53 (0.55) (6.19) 1.96∗∗∗ 5.49 (0.47) (5.30) 1.49∗∗∗ 8.58∗ (0.44) (5.19) 2.45∗∗∗ 5.15 (0.44) (5.99)
−2.30 (5.64)
9.75∗∗∗ −4.67 (3.64) (6.03) −0.62 (5.69)
−1.03 (6.03)
−5.55 (6.78)
9.27∗∗ (3.80) 7.73∗∗ (3.51) 9.25∗∗∗ −1.79 (3.59) (5.55) −3.85 (6.20)
7.51∗∗ (3.76) 9.52∗∗∗ −1.98 (3.41) (5.48) −2.92 (6.01)
6.92∗ (3.67)
7.07∗ (4.12)
11.19∗∗ (4.50)
11.92∗∗∗ −4.16 (4.29) (8.78)
Cons. Discr. (15)
Cons. Staples (11)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
1.57 (6.92)
1.84∗ (1.08)
0.72 (0.58)
1.25 (0.80)
0.36 (0.79)
0.93 (0.79)
1.17 (0.87)
0.89 (0.94)
1.19 (0.95)
1.73∗∗ (0.83)
1.09 (0.87)
1.06 (0.79)
β2
−9.33 (6.17)
−5.94 (3.98)
−4.31 (3.30)
−2.27 (2.71)
−2.35 (3.11)
−3.33 (3.21)
−2.47 (2.57)
−6.92∗ (3.57)
−1.26 (3.10)
−2.86 (2.84)
−3.41 (3.10)
δ
0.09
0.10
0.10
0.08
0.09
0.08
0.09
0.10
0.09
0.10
0.09
R2
0.54
0.04
0.16
0.07
0.30
0.21
0.13
0.53
0.26
0.10
0.16
α1 = α2
0.65
0.04
0.19
0.21
0.27
0.58
0.29
0.83
0.87
0.31
0.37
β1 = β2
0.37
0.09
0.34
0.19
0.51
0.35
0.32
0.76
0.34
0.25
0.36
α1 = α2 β1 = β2
Note: The table shows the results from the regression of the daily change in 60-minute realized correlations [excluding the first five minutes immediately following the announcement] on absolute surprises in Federal funds rate changes allowing for different effects of positive and negative surprises, and for different effects of ‘reversal’ decisions (equation (A.17)). The model is estimated using the realized correlations between individual stocks belonging to different sectors for the 77 FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. Negative and positive surprises occur in 26 and 28 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
1.20 (0.88)
2.29∗∗∗ 7.71 (0.48) (6.05)
1.87∗∗∗ 5.67 (0.42) (5.14)
−2.62 (5.67)
8.78∗∗ (3.49)
α2
All stocks (100)
β1
α1
α0
Wald tests
Table A.33: Asymmetric response of inter-sector realized correlations to positive and negative surprises
Table A.34: Asymmetric response of realized correlations to positive and negative surprises Wald tests α0 Cons. Discr. - Cons. Discr. Cons. Discr. - Cons. Staples Cons. Discr. - Energy Cons. Discr. - Financials Cons. Discr. - Health Care Cons. Discr. - Industrials Cons. Discr. - IT Cons. Discr. - Materials Cons. Discr. - Telecomm. Cons. Discr. - Utilities Cons. Staples - Cons. Staples Cons. Staples - Energy Cons. Staples - Financials Cons. Staples - Health Care Cons. Staples - Industrials Cons. Staples - IT Cons. Staples - Materials Cons. Staples - Telecomm. Cons. Staples - Utilities Energy - Energy Energy - Financials Energy - Health Care Energy - Industrials Energy - IT Energy - Materials Energy - Telecomm. Energy - Utilities Financials - Financials Financials - Health Care Financials - Industrials Financials - IT Financials - Materials Financials - Telecomm. Financials - Utilities Health Care - Health Care Health Care - Industrials Health Care - IT Health Care - Materials Health Care - Telecomm. Health Care - Utilities Industrials - Industrials Industrials - IT Industrials - Materials Industrials - Telecomm. Industrials - Utilities IT - IT IT - Materials IT - Telecomm. IT - Utilities Materials - Materials Materials - Telecomm. Materials - Utilities Telecomm. - Telecomm. Telecomm. - Utilities Utilities - Utilities
α1
5.59 −1.51 6.90∗ −3.15 7.70∗∗ −3.22 6.47∗ 0.44 6.84∗ −2.87 5.05 −0.20 7.29∗ −2.11 5.82 −5.19 9.70∗∗ −4.62 10.50∗∗ −5.82 11.81∗∗∗ −9.14 9.98∗∗ −4.91 12.19∗∗∗ −6.38 10.79∗∗∗ −5.59 8.37∗∗ −1.90 10.22∗∗∗ −4.11 8.05∗ −6.18 11.97∗∗ −8.58 11.92∗∗∗ −5.43 5.10 −4.04 6.29 4.12 9.56∗∗ −1.14 5.05 3.84 6.94∗ 0.96 4.87 −4.51 12.54∗∗ −5.45 7.81 −1.90 12.00∗∗∗ −4.48 10.93∗∗∗ −4.45 8.91∗∗ −0.82 10.97∗∗∗ 0.31 7.60∗ −3.82 11.66∗∗ −5.50 12.38∗∗∗ −4.92 9.92∗∗ −5.17 8.14∗∗ −2.10 9.75∗∗∗ −0.42 6.30 −2.55 11.35∗∗ −5.65 12.19∗∗ −1.58 4.91 3.71 8.33∗∗ −1.62 7.54∗ −1.65 10.17∗∗ −5.87 9.82∗ 1.34 8.47∗∗ 1.55 6.56 −3.54 11.04∗∗ −2.91 14.47∗∗∗ −4.60 6.02 −12.11∗ 7.22 −1.30 11.21∗∗ −6.12 16.44∗∗∗−12.68∗ 19.48∗∗∗−13.66 6.10 1.99
β1
α2
2.37∗∗∗ 7.83 2.10∗∗∗ 4.08 1.78∗∗∗ 1.55 2.03∗∗∗ 9.85∗ 2.05∗∗∗ 6.55 2.12∗∗∗ 7.37 1.82∗∗∗ 10.49∗ 2.70∗∗∗ 5.73 2.60∗∗∗ 9.56 1.56∗ 3.15 2.03∗∗∗−0.24 1.64∗∗∗−0.47 2.07∗∗∗ 2.73 1.75∗∗∗ 2.77 1.96∗∗∗ 1.21 1.52∗∗∗ 4.50 2.16∗∗∗ 0.00 2.14∗∗∗ 2.34 1.40 −1.94 0.26 −1.62 1.11∗∗ 5.72 1.34∗∗∗ 0.04 1.14∗∗ 3.91 0.86∗ 8.38 2.72∗∗∗ 3.08 1.83∗∗∗ 6.09 0.78 1.14 2.71∗∗∗ 8.36 1.98∗∗∗ 5.94 2.23∗∗∗ 5.31 1.37∗∗∗ 9.74∗ 2.98∗∗∗ 6.12 3.09∗∗∗ 7.41 1.43 4.56 2.04∗∗ 5.45 1.95∗∗∗ 6.26 1.17∗∗ 9.89∗ 2.06∗∗∗ 6.53 2.24∗∗∗ 5.98 0.65 −1.21 1.99∗∗∗ 6.74 1.70∗∗∗ 8.54 2.34∗∗∗ 3.46 2.68∗∗∗ 9.07 1.12 1.47 0.88 14.46∗∗ 2.38∗∗∗ 9.04 1.22∗∗∗ 12.14∗ 0.55 2.03 3.60∗∗∗ 1.45 2.46∗∗∗ 10.04 1.77∗∗ 1.43 2.77∗∗∗ 10.59 1.65∗ 1.57 0.34 8.38
β2
δ
R2
1.12 1.04 0.10 1.95∗∗ −0.40 0.09 1.60 −8.08∗ 0.11 0.93 −0.87 0.10 1.34 −3.56 0.09 0.88 −1.90 0.09 0.33 −0.91 0.09 1.46 −5.45 0.11 0.41 −4.68 0.11 1.28 −8.57 0.09 1.77∗ 0.43 0.08 1.49∗ −3.00 0.09 1.21 −0.28 0.08 1.62∗ −0.68 0.09 1.89∗ 1.23 0.09 1.19 −0.84 0.09 2.03∗∗ −1.66 0.08 2.15∗∗∗ −6.20 0.11 3.14∗∗ −8.20 0.09 1.36 0.11 0.08 1.13 −8.77∗ 0.09 1.86∗∗ −7.20 0.09 1.06 −8.40∗ 0.09 0.33 −11.69∗∗∗0.09 0.61 1.81 0.13 0.62 −5.73 0.10 2.14∗ −3.16 0.09 0.69 −0.57 0.10 0.86 −2.63 0.08 0.82 −0.20 0.08 0.20 −0.30 0.08 1.11 −5.16 0.11 0.74 −4.67 0.11 1.60 −10.23∗ 0.09 1.70∗ −3.91 0.09 0.65 −1.58 0.08 0.47 −2.71 0.08 1.50∗ −4.34 0.09 1.38∗∗ −8.49 0.10 2.34∗∗ −5.76 0.08 0.68 0.25 0.09 −0.08 −0.18 0.07 1.42∗ −3.53 0.10 0.28 −6.12 0.10 2.28∗∗ −12.07 0.08 −0.86 −2.48∗∗ 0.07 0.40 −4.62 0.09 −0.47 −0.79 0.08 0.90 −6.89 0.07 1.68 −9.12 0.10 0.81 −5.53 0.10 1.68 −11.76 0.09 −0.21 −24.42∗∗∗0.14 1.39 −21.31∗∗ 0.12 2.52∗ −4.38 0.11
α1 = α2 β1 = β2 0.13 0.24 0.47 0.11 0.16 0.18 0.03 0.10 0.02 0.33 0.24 0.49 0.15 0.23 0.67 0.15 0.37 0.14 0.72 0.76 0.81 0.88 0.99 0.23 0.36 0.15 0.78 0.05 0.16 0.36 0.07 0.15 0.12 0.30 0.18 0.28 0.11 0.21 0.14 0.97 0.70 0.14 0.46 0.03 0.99 0.04 0.06 0.02 0.49 0.12 0.12 0.46 0.00 0.15 0.67
0.27 0.89 0.88 0.39 0.53 0.17 0.11 0.29 0.02 0.85 0.83 0.88 0.47 0.91 0.96 0.72 0.90 0.99 0.28 0.45 0.98 0.60 0.95 0.62 0.18 0.29 0.36 0.16 0.42 0.18 0.33 0.05 0.02 0.92 0.78 0.29 0.44 0.61 0.41 0.20 0.18 0.11 0.32 0.00 0.40 0.17 0.03 0.08 0.82 0.25 0.15 0.95 0.00 0.86 0.37
α1 = α2 β1 = β2 0.31 0.32 0.65 0.27 0.29 0.34 0.08 0.26 0.04 0.50 0.31 0.72 0.33 0.20 0.86 0.22 0.48 0.05 0.16 0.42 0.93 0.45 1.00 0.40 0.41 0.36 0.23 0.14 0.35 0.41 0.20 0.16 0.06 0.30 0.14 0.52 0.17 0.35 0.29 0.13 0.25 0.24 0.60 0.01 0.46 0.11 0.09 0.05 0.44 0.31 0.27 0.62 0.01 0.16 0.24
Note: The table shows the results from the regression of the daily change in 60-minute realized correlations on absolute surprises in Federal funds rate changes allowing for different effects of positive and negative surprises, and for different effects of ‘reversal’ decisions (equation (A.17)). The model is estimated using the realized correlations between individual stocks for the 77 FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. Negative and positive surprises occur in 26 and 28 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
Figure A.9: Asymmetric effects of positive and negative surprises for intra-industry stock correlations 200 alpha_1
180
alpha_2
umber of correlations
160 140 120 100 80 60 40 20 0 -80.49
-66.58
-52.67
-38.76
-24.85
-10.94
2.98
16.89
30.80
44.71
Average alpha in bucket
(a) Intercepts α1 and α2 160 beta_1
umber of correlations
140
beta_2
120 100 80 60 40 20 0 -6.20
-4.57
-2.94
-1.30
0.33
1.96
3.59
5.23
6.86
8.49
Average beta in bucket
(b) Surprise coefficients β1 and β2 Note: The figure shows histograms of the coefficient estimates in the regression (A.17) allowing for asymmetric effects of positive and negative surprises in the target rate change, estimated using realized correlations during the 60-minute window starting 10 minutes before the FOMC announcement [excluding the first five minutes immediately following the announcement] for stocks belonging to the same industry.
62
Figure A.10: Asymmetric effects of positive and negative surprises for inter-industry stock correlations 1800 alpha_1
umber of correlations
1600
alpha_2
1400 1200 1000 800 600 400 200 0 -66.67
-51.08
-35.49
-19.90
-4.31
11.29
26.88
42.47
58.06
73.65
Average alpha in bucket
(a) Intercepts α1 and α2 2000 beta_1
1800
beta_2
umber of correlations
1600 1400 1200 1000 800 600 400 200 0 -9.72
-7.49
-5.27
-3.05
-0.82
1.40
3.63
5.85
8.07
10.30
Average beta in bucket
(b) Surprise coefficients β1 and β2 Note: The figure shows histograms of the coefficient estimates in the regression (A.17) allowing for asymmetric effects of positive and negative surprises in the target rate change, estimated using realized correlations during the 60-minute window starting 10 minutes before the FOMC announcement [excluding the first five minutes immediately following the announcement] for stocks belonging to different industries.
63
64
2.15∗∗ (0.91) 2.54∗∗ (1.09) 0.28 (0.88) −1.75 (2.37) 2.89∗∗∗ (0.97) 2.26 (1.61) 2.70 (1.94) 2.74∗∗ (1.24) 0.49 (1.50) 1.19 (1.94) 1.80 (3.28)
5.77∗∗∗ (1.67) 3.79 (2.72) 7.22∗∗∗ (2.51) 8.53 (6.06) 7.54∗∗∗ (2.40) 7.00∗ (3.71) 4.28 (2.96) 6.04∗∗ (2.45) 1.70 (3.39) 12.49∗∗ (5.12) 5.98 (6.88) 1.40 (1.94) −0.90 (4.34) 1.07 (5.34) −5.73 (23.81) 2.67 (6.75) −0.64 (3.24) −0.72 (4.95) 5.29 (4.05) 2.11 (7.01) 19.16∗∗∗ (7.32) 5.25 (17.56)
α1 2.19∗∗∗ (0.29) 2.57∗∗∗ (0.51) 2.62∗∗∗ (0.53) 1.16 (1.67) 2.47∗∗∗ (0.68) 2.71∗∗∗ (0.53) 2.38∗∗∗ (0.56) 0.76 (0.57) 2.82∗∗∗ (0.77) 1.50∗∗ (0.75) 1.52 (2.42)
β1 17.41∗∗ (7.38) 12.42 (10.96) 20.95∗∗∗ (7.73) −0.31 (6.20) 18.29∗∗∗ (5.51) 21.42∗∗∗ (7.26) 13.77∗ (7.85) 23.67∗∗∗ (6.42) 20.62∗ (11.16) 30.85∗∗∗ (7.19) 14.98 (11.58)
α2
δ
1.20 −3.16 (2.48) (2.11) 1.83 −1.53 (3.54) (2.53) 0.06 −0.05 (2.15) (2.31) 0.90 −0.96 (4.64) (9.36) ∗∗ 4.32 −2.07∗∗ (1.76) (0.84) −1.53 −6.03 (3.27) (4.55) 1.12 −0.03 (2.99) (3.67) 0.37 −2.71∗ (2.81) (1.55) 0.35 −17.53∗∗∗ (2.24) (4.84) ∗∗ −5.10 −31.50∗∗∗ (2.38) (7.61) 0.64 −11.21 (6.67) (11.16)
β2
0.08
0.15
0.14
0.10
0.11
0.12
0.14
0.10
0.10
0.12
0.12
R2
0.64
0.26
0.15
0.02
0.12
0.01
0.07
0.83
0.03
0.25
0.03
α1 = α2
0.90
0.01
0.30
0.89
0.68
0.20
0.33
0.96
0.25
0.84
0.69
β1 = β2
0.88
.
0.35
0.01
0.20
0.02
0.00
0.97
0.09
0.38
0.03
α1 = α2 β1 = β2
where ∆F (RCijt ) is the difference between the Fisher-transformed realized correlation between stocks i and j during the 60-minute window starting 10 minutes before the target rate decision is made public [excluding the first five minutes immediately following the announcement] and during the same window on the day before, St is the surprise as defined in (A.1), ∆F Ft is the actual target rate change, D(A) is a dummy variable taking the value 1 if the event A is true and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for the realized correlations between individual stocks belonging to the same sector following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. Target rate decreases and increases occur in 12 and 23 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
∆F (RCijt ) = (α0ij + β0ij |St |)D(∆F Ft = 0) + (α1ij + β1ij |St |)D(∆F Ft < 0) + (α2ij + β2ij |St |)D(∆F Ft > 0) + δij |St |REVt + εijt ,
Note: The table shows results for the regression
Utilities (5)
Telecomm. (5)
Materials (7)
IT (13)
Industrials (14)
Health Care (10)
Financials (14)
Energy (6)
Cons. Staples (11)
Cons. Discr. (15)
All stocks (100)
β0
α0
Wald tests
Table A.35: Asymmetric response of intra-sector realized correlations to surprises following target rate decreases and increases
65
6.58∗∗∗ (2.02) 4.90∗∗ (2.26) 6.90∗∗∗ (2.40) 7.72∗∗ (3.22) 7.74∗∗∗ (1.91) 6.53∗∗∗ (2.43) 5.83∗∗∗ (2.16) 6.51∗∗∗ (1.95) 5.88∗∗ (2.61) 7.40∗∗ (3.06) 8.45∗∗ (3.83)
α1
1.64∗ 1.60 (0.93) (1.86) ∗∗ 2.02 0.47 (0.93) (2.20) 1.09 −0.07 (0.98) (2.57) 0.94 −12.22∗∗ (1.18) (4.80) ∗∗ 1.84 1.06 (0.91) (3.39) 1.83∗ −0.22 (0.98) (2.48) 1.67 1.33 (1.26) (2.53) 1.97∗∗ 4.87∗∗∗ (0.78) (1.63) 1.22 2.37 (1.09) (2.67) 1.42 8.46∗∗∗ (1.35) (2.49) 1.70 14.36∗∗ (1.79) (6.07)
β0 2.16∗∗∗ (0.24) 2.32∗∗∗ (0.31) 2.56∗∗∗ (0.28) 2.59∗∗∗ (0.54) 2.34∗∗∗ (0.39) 2.35∗∗∗ (0.30) 2.23∗∗∗ (0.30) 1.41∗∗∗ (0.26) 2.40∗∗∗ (0.32) 2.04∗∗∗ (0.33) 1.09 (0.82)
β1 17.85∗∗ (8.37) 16.10 (9.98) 18.16∗∗ (8.89) 9.22∗ (5.36) 17.57∗∗ (8.00) 20.19∗∗∗ (7.73) 15.87∗∗ (7.98) 19.91∗∗ (7.81) 19.51∗ (10.96) 25.26∗∗∗ (7.79) 18.92∗∗ (7.39)
α2 0.62 (2.50) 0.83 (2.82) 0.58 (2.51) 1.91 (3.04) 1.43 (2.28) −0.57 (2.62) 1.11 (2.64) 1.31 (2.67) 0.83∗∗∗ (0.00) −1.02 (3.85) −2.68 (4.45)
β2 −5.02∗ (2.63) −4.94∗∗ (2.12) −2.22 (2.55) −9.71∗∗∗ (3.24) −3.52 (2.97) −4.43 (2.82) −3.47 (2.81) −3.81∗ (2.22) −7.14∗∗∗ (0.00) −9.55∗∗∗ (3.31) −9.62∗∗ (4.49)
δ
0.10
0.13
0.12
0.11
0.11
0.11
0.11
0.11
0.11
0.11
0.11
R2
0.63
0.04
0.12
0.06
0.08
0.01
0.06
0.00
0.05
0.12
0.06
α1 = α2
0.40
0.43
0.97
0.68
0.27
0.70
0.83
0.43
0.60
0.54
β1 = β2
0.70
0.05
.
0.03
0.12
0.02
0.04
0.00
0.07
0.18
0.06
α1 = α2 β1 = β2
where ∆F (RCijt ) is the difference between the Fisher-transformed realized correlation between stocks i and j during the 60-minute window starting 10 minutes before the target rate decision is made public [excluding the first five minutes immediately following the announcement] and during the same window on the day before, St is the surprise as defined in (A.1), ∆F Ft is the actual target rate change, D(A) is a dummy variable taking the value 1 if the event A is true and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for the realized correlations between individual stocks belonging to different sectors following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. Target rate decreases and increases occur in 12 and 23 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
∆F (RCijt ) = (α0ij + β0ij |St |)D(∆F Ft = 0) + (α1ij + β1ij |St |)D(∆F Ft < 0) + (α2ij + β2ij |St |)D(∆F Ft > 0) + δij |St |REVt + εijt ,
Note: The table shows results for the regression
Utilities (5)
Telecomm. (5)
Materials (7)
IT (13)
Industrials (14)
Health Care (10)
Financials (14)
Energy (6)
Cons. Staples (11)
Cons. Discr. (15)
All stocks (100)
α0
Wald tests
Table A.36: Asymmetric response of inter-sector realized correlations to surprises following target rate decreases and increases
66
2.42 (1.78) 1.09∗ (0.63) 2.12∗ (1.19) 2.24∗∗∗ (0.67)
13.26∗∗∗ 2.42∗∗∗ −1.19 (2.38) (0.51) (7.73) 5.88 (4.91)
10.11∗∗∗ 2.39∗∗∗ (3.06) (0.46) 7.80∗∗∗ 2.02∗∗∗ −0.87 (2.94) (0.44) (7.39) 13.38∗∗∗ 0.44 (2.63) (0.68)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
6.14 (17.12)
10.50∗ (5.51)
Utilities (5)
2.75 (1.77)
2.02 (1.26)
0.11
0.06
0.07
0.09
0.09
0.05
0.06
0.08
0.07
R2
−7.10 (10.11)
0.07
−30.53∗∗∗ 0.11 (8.31)
−13.04∗∗ (5.58)
−2.46∗∗ (0.98)
0.79 (2.72)
−6.15∗ (3.69)
−1.39∗ (0.77)
−2.90 (5.53)
0.06 (2.75)
−0.68 (2.02)
−2.47∗ (1.44)
δ
0.81
0.99
0.43
0.01
0.28
0.46
0.07
0.39
0.01
0.17
0.02
α1 = α2
0.41
0.62
0.22
0.06
0.94
0.10
1.00
0.59
0.38
0.90
0.79
β1 = β2
0.64
0.69
0.45
0.03
0.30
0.00
0.00
0.67
0.01
0.06
0.00
α1 = α2 β1 = β2
where ∆F (RCijt ) is the difference between the Fisher-transformed realized correlation between stocks i and j during the 60-minute window starting 10 minutes before the target rate decision is made public [excluding the first five minutes immediately following the announcement] and during the same window on the day before, St is the surprise as defined in (A.1), N BERt is a dummy variable taking the value 1 for announcements during recessions, defined according to the NBER turning point dates, and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for the realized correlations between individual stocks belonging to the same sector following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. Six announcement occur during the NBER-defined recession between March 2001 and November 2001. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
∆F (RCijt ) = (α1ij + β1ij St )(1 − N BERt ) + (α2ij + β2ij St )N BERt + δij St REVt + εijt ,
Note: The table shows results for the regression
0.67 (1.81)
15.91∗ (9.38)
15.78∗∗∗ 1.30∗ (3.61) (0.69)
Telecomm. (5)
3.07∗∗∗ 12.43 (0.58) (12.56)
2.20 (3.12)
Materials (7)
0.72 (1.84)
1.22 (1.11)
−4.50 (10.19)
4.52∗∗ (2.30)
Energy (6)
0.36 (4.16)
2.57∗∗∗ (0.75)
9.83∗∗∗ 1.75∗∗∗ −5.32 (2.75) (0.57) (4.93)
Cons. Staples (11) 0.49 (0.81)
2.58∗ (1.56)
7.52∗∗∗ 2.38∗∗∗ −4.84 (2.49) (0.39) (8.71)
Cons. Discr. (15)
β2 2.17∗∗ (0.98)
α2
9.83∗∗∗ 1.89∗∗∗ −0.54 (2.12) (0.32) (3.93)
β1
All stocks (100)
α1
Wald tests
Table A.37: Asymmetric response of intra-sector realized correlations to surprises in expansions and recessions
67
1.39 (3.67) 2.87 (4.89) 2.43 (2.85) 8.31∗ (4.51)
10.40∗∗∗ 1.77∗∗∗ −7.60∗∗∗ 0.08 (2.58) (0.61) (2.59)
10.24∗∗∗ 1.92∗∗∗ (2.50) (0.34) 9.04∗∗∗ 1.84∗∗∗ (2.40) (0.32) 11.47∗∗∗ 1.24∗∗∗ (2.27) (0.41) 7.47∗∗∗ 2.09∗∗∗ (2.49) (0.34) 11.81∗∗∗ 1.75∗∗∗ (2.81) (0.45) 11.75∗∗∗ 1.24 (3.27) (0.80)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
−2.51 (1.67)
1.95∗ (1.07)
1.71∗ (0.95)
0.06
0.07
0.07
0.07
−9.81∗∗∗ 0.06 (2.62)
−5.86∗∗∗ 0.08 (2.27)
1.92∗∗∗ −2.92∗ (0.71) (1.63)
1.89∗∗ (0.93)
1.59∗∗∗ −4.22∗∗ (0.46) (1.97)
−3.05∗∗ (1.30)
−8.40∗∗∗ 0.07 (1.54)
0.07
0.53
0.71
0.87
0.01
0.26
0.05
0.06
0.58
0.00
0.05
0.06
α1 = α2
0.59
0.97
0.70
0.41
0.96
0.56
0.76
0.96
0.33
0.90
0.79
β1 = β2
0.82
0.87
0.91
0.01
0.26
0.00
0.01
0.75
0.00
0.00
0.02
α1 = α2 β1 = β2
where ∆F (RCijt ) is the difference between the Fisher-transformed realized correlation between stocks i and j during the 60-minute window starting 10 minutes before the target rate decision is made public [excluding the first five minutes immediately following the announcement] and during the same window on the day before, St is the surprise as defined in (A.1), N BERt is a dummy variable taking the value 1 for announcements during recessions, defined according to the NBER turning point dates, and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for the realized correlations between individual stocks belonging to different sectors following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. Six announcement occur during the NBER-defined recession between March 2001 and November 2001. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
∆F (RCijt ) = (α1ij + β1ij St )(1 − N BERt ) + (α2ij + β2ij St )N BERt + δij St REVt + εijt ,
Note: The table shows results for the regression
2.03 (4.40)
11.07∗∗∗ 1.81∗∗∗ (2.15) (0.36)
Financials (14)
5.74 (9.07)
1.50∗ (0.80)
5.01 (6.16)
8.57∗∗∗ 1.45∗∗∗ (1.96) (0.47)
Energy (6) 2.19∗ (1.17)
2.56∗∗∗ −1.87 (0.65) (1.94)
9.61∗∗∗ 1.82∗∗∗ −2.80 (2.34) (0.39) (3.51)
Cons. Staples (11)
−4.14∗∗∗ 0.07 (1.58)
2.15∗∗ (1.02)
8.52∗∗∗ 2.02∗∗∗ −0.58 (2.24) (0.32) (4.11)
Cons. Discr. (15)
R2
−4.26∗∗∗ 0.07 (1.64)
δ
1.97∗∗ (0.80)
β2
2.52 (3.24)
α2
9.89∗∗∗ 1.75∗∗∗ (2.21) (0.31)
β1
All stocks (100)
α1
Wald tests
Table A.38: Asymmetric response of inter-sector realized correlations to surprises in expansions and recessions
68
1.73 (1.08) 1.99∗ (1.03) 0.43 (0.93) 0.02 (2.16) 3.16∗∗∗ (1.18) 0.25 (1.51) 2.55∗ (1.54) 1.60 (1.20) 0.54 (0.94) 0.48 (1.80) −0.39 (2.20)
10.49∗∗∗ (2.90) 7.67∗∗ (3.46) 11.76∗∗∗ (3.37) 4.90 (4.59) 14.06∗∗∗ (3.04) 12.86∗∗∗ (4.11) 7.99∗ (4.30) 11.83∗∗∗ (3.27) 7.10∗∗ (3.04) 15.84∗∗∗ (4.73) 12.32∗ (6.65)
All stocks (100)
Cons. Discr. (15)
Cons. Staples (11)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
1.93∗∗∗ (0.53)
2.29∗∗∗ (0.56)
2.42∗∗∗ (0.58)
0.50 (0.72)
2.25∗∗∗ (0.47)
2.21∗∗∗ (0.51)
1.87∗∗∗ (0.34)
β2
8.87 (10.86)
1.44 (1.91)
0.07
0.09
0.10
0.07
0.06
0.08
0.08
R2
−8.57 (10.42)
0.07
−30.44∗∗∗ 0.12 (8.51)
0.09
−3.30∗∗∗ 0.05 (1.25)
0.37 (3.00)
−6.03 (3.83)
−2.28∗∗ (1.02)
−3.19 (9.02)
0.98 (2.76)
−0.89 (2.29)
−2.80 (1.82)
δ
3.00∗∗∗ −13.24∗∗ (0.73) (5.31)
19.68∗∗∗ 1.53∗∗ (5.65) (0.66)
0.42 (6.26)
13.08∗∗∗ 0.26 (3.40) (0.54)
5.50 (3.81)
6.74 (4.34)
3.72 (3.20)
3.26 (5.84)
5.57 (3.75)
5.06 (3.63)
6.42∗∗ (2.56)
α2
0.79
0.60
0.34
0.79
0.66
0.31
0.02
0.83
0.22
0.60
0.29
α1 = α2
0.53
0.58
0.04
0.31
0.71
0.20
0.57
0.83
0.08
0.85
0.90
β1 = β2
0.81
0.52
0.12
0.57
0.63
0.42
0.01
0.97
0.21
0.86
0.51
α1 = α2 β1 = β2
where ∆F (RCijt ) is the difference between the Fisher-transformed realized correlation between stocks i and j during the 60-minute window starting 10 minutes before the target rate decision is made public [excluding the first five minutes immediately following the announcement] and during the same window on the day before, St is the surprise as defined in (A.1), EM Pt is a dummy variable taking the value 1 for announcements during recessions and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. A recession is defined to start (end) when there are three consecutive monthly declines (increases) in nonfarm payroll employment. The model is estimated for the realized correlations between individual stocks belonging to the same sector following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. 20 announcement occur during the recession period between March 2001 and August 2003. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
∆F (RCijt ) = (α1ij + β1ij St )(1 − EM Pt ) + (α2ij + β2ij St )EM Pt + δij St REVt + εijt ,
Note: Note: The table shows results for the regression
β1
α1
Wald tests
Table A.39: Asymmetric response of intra-sector realized correlations to surprises in expansions and recessions
69
5.64 (3.55) 5.90∗∗ (2.93) 6.48∗ (3.54) 5.78∗ (3.18) 9.80∗∗∗ 1.13∗∗∗ (2.92) (0.34)
10.46∗∗ (5.20)
12.36∗∗∗ 1.68 (2.87) (1.13) 12.01∗∗∗ 0.83 (3.40) (0.89) 9.96∗∗∗ 1.74∗ (3.28) (0.94) 11.14∗∗∗ 1.69∗ (3.07) (1.01) 9.16∗∗∗ 1.22∗∗∗ 5.06 (3.10) (0.00) (4.07) 10.85∗∗∗ 1.98∗∗∗ (3.67) (0.38)
9.37∗∗∗ 1.71 (3.39) (3.21)
13.16∗∗∗ 0.99 (4.02) (1.19) 12.61∗∗∗ 0.66 (4.29) (1.57)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
1.45∗ (0.76)
2.35∗∗∗ (0.41)
1.93∗∗∗ (0.37)
1.91∗∗∗ (0.39)
2.07∗∗∗ (0.40)
1.55∗∗∗ (0.29)
2.22∗∗∗ (0.32) 0.07
0.08
0.07
R2
0.06
0.07
0.07
0.07
−10.31∗∗∗ 0.06 (3.46)
−7.88∗∗∗ 0.08 (2.97)
−5.93∗∗∗ 0.08 (2.18)
−3.53∗ (1.91)
−2.96 (1.93)
−4.28∗ (2.29)
−3.57∗∗ (1.75)
−9.63∗∗∗ 0.08 (3.41)
−1.73 (2.21)
−4.25∗∗ (1.89)
−4.60∗∗ (2.01)
δ
0.75
0.67
0.42
0.75
0.36
0.26
0.12
0.45
0.14
0.44
0.33
α1 = α2
0.65
0.43
0.60
0.85
0.26
0.75
0.96
0.29
0.64
0.63
β1 = β2
0.90
0.72
.
0.63
0.56
0.48
0.25
0.70
0.32
0.74
0.62
α1 = α2 β1 = β2
where ∆F (RCijt ) is the difference between the Fisher-transformed realized correlation between stocks i and j during the 60-minute window starting 10 minutes before the target rate decision is made public [excluding the first five minutes immediately following the announcement] and during the same window on the day before, St is the surprise as defined in (A.1), EM Pt is a dummy variable taking the value 1 for announcements during recessions and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. A recession is defined to start (end) when there are three consecutive monthly declines (increases) in nonfarm payroll employment. The model is estimated for the realized correlations between individual stocks belonging to different sectors following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. 20 announcement occur during the recession period between March 2001 and August 2003. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
∆F (RCijt ) = (α1ij + β1ij St )(1 − EM Pt ) + (α2ij + β2ij St )EM Pt + δij St REVt + εijt ,
Note: Note: The table shows results for the regression
4.93 (3.07)
11.35∗∗∗ 0.94 (3.14) (1.15)
Cons. Staples (11)
2.01∗∗∗ (0.38)
5.79∗ (3.22)
9.26∗∗∗ 1.58∗ (3.13) (0.87)
Cons. Discr. (15)
1.87∗∗∗ (0.31)
β2
6.75∗∗ (3.00)
α2
10.92∗∗∗ 1.38 (3.04) (0.96)
β1
All stocks (100)
α1
Wald tests
Table A.40: Asymmetric response of inter-sector realized correlations to surprises in expansions and recessions
Table A.41: Mean level of intra-sector bipower correlations following FOMC announcements All
Rate Rate increase decrease (23 obs) (12 obs)
(77 obs)
Positive Negative surprise surprise (28 obs) (26 obs)
All stocks (100 stocks)
0.42∗∗∗ (0.37)
0.47∗∗∗ (0.35)
0.44∗∗∗ (0.36)
0.47∗∗∗ (0.35)
0.40∗∗∗ (0.38)
Consumer Discretionary (15)
0.35∗∗∗ (0.38)
0.39∗∗∗ (0.36)
0.39∗∗∗ (0.38)
0.41∗∗∗ (0.35)
0.33∗∗∗ (0.40)
Consumer Staples (11)
0.39∗∗∗ (0.38)
0.48∗∗∗ (0.35)
0.43∗∗∗ (0.33)
0.45∗∗∗ (0.34)
0.34∗∗∗ (0.39)
Energy (6)
0.39∗∗∗ (0.37)
0.46∗∗∗ (0.35)
0.39∗∗∗ (0.37)
0.44∗∗∗ (0.35)
0.34∗∗∗ (0.39)
Financials (14)
0.53∗∗∗ (0.32)
0.59∗∗∗ (0.30)
0.52∗∗∗ (0.33)
0.58∗∗∗ (0.29)
0.49∗∗∗ (0.34)
Health Care (10)
0.39∗∗∗ (0.37)
0.40∗∗∗ (0.34)
0.39∗∗∗ (0.36)
0.43∗∗∗ (0.34)
0.39∗∗∗ (0.36)
Industrials (14)
0.40∗∗∗ (0.38)
0.47∗∗∗ (0.36)
0.41∗∗∗ (0.39)
0.43∗∗∗ (0.38)
0.40∗∗∗ (0.37)
IT (13)
0.44∗∗∗ (0.36)
0.48∗∗∗ (0.35)
0.47∗∗∗ (0.34)
0.48∗∗∗ (0.36)
0.45∗∗∗ (0.35)
Materials (7)
0.40∗∗∗ (0.39)
0.44∗∗∗ (0.37)
0.47∗∗∗ (0.35)
0.46∗∗∗ (0.33)
0.33∗∗∗ (0.40)
Telecommunications (5)
0.43∗∗∗ (0.38)
0.46∗∗∗ (0.31)
0.49∗∗∗ (0.30)
0.50∗∗∗ (0.31)
0.36∗∗∗ (0.39)
Utilities (5)
0.44∗∗∗ (0.38)
0.57∗∗∗ (0.32)
0.43∗∗∗ (0.37)
0.48∗∗∗ (0.36)
0.39∗∗∗ (0.39)
Note: The table reports the average intra-sector bipower correlations in basis points for 60minute windows (from 10 minutes before until 50 minutes after) around FOMC announcements on days of the 77 scheduled FOMC meetings from May 1997 to October 2006, with standard deviations given in parentheses. Columns headed ‘Rate increase (decrease)’ show average correlations following the announcement of an increase (decrease) of the Federal funds target rate. Columns headed ‘Positive (negative) surprise’ show average correlations following a positive (negative) surprise in the target rate change, where the surprise is computed as the difference between the closing price of the nearby Fed funds futures contract one day before the announcement and on the announcement day itself. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate significance at the 1%, 5% and 10% level, respectively.
70
Table A.42: Mean level of inter-sector bipower correlations following FOMC announcements All
Rate Rate increase decrease (23 obs) (12 obs)
(77 obs)
Positive Negative surprise surprise (28 obs) (26 obs)
All stocks (100 stocks)
0.39∗∗∗ (0.38)
0.43∗∗∗ (0.35)
0.42∗∗∗ (0.37)
0.43∗∗∗ (0.36)
0.36∗∗∗ (0.38)
Consumer Discretionary (15)
0.37∗∗∗ (0.38)
0.41∗∗∗ (0.36)
0.41∗∗∗ (0.37)
0.42∗∗∗ (0.36)
0.35∗∗∗ (0.39)
Consumer Staples (11)
0.38∗∗∗ (0.38)
0.44∗∗∗ (0.35)
0.41∗∗∗ (0.36)
0.43∗∗∗ (0.35)
0.35∗∗∗ (0.39)
Energy (6)
0.34∗∗∗ (0.37)
0.37∗∗∗ (0.34)
0.40∗∗∗ (0.36)
0.39∗∗∗ (0.36)
0.33∗∗∗ (0.38)
Financials (14)
0.42∗∗∗ (0.36)
0.47∗∗∗ (0.34)
0.45∗∗∗ (0.36)
0.47∗∗∗ (0.34)
0.40∗∗∗ (0.37)
Health Care (10)
0.38∗∗∗ (0.38)
0.43∗∗∗ (0.34)
0.39∗∗∗ (0.37)
0.42∗∗∗ (0.36)
0.37∗∗∗ (0.38)
Industrials (14)
0.39∗∗∗ (0.38)
0.44∗∗∗ (0.35)
0.42∗∗∗ (0.38)
0.43∗∗∗ (0.36)
0.38∗∗∗ (0.38)
IT (13)
0.39∗∗∗ (0.37)
0.44∗∗∗ (0.35)
0.43∗∗∗ (0.36)
0.44∗∗∗ (0.36)
0.38∗∗∗ (0.38)
Materials (7)
0.37∗∗∗ (0.38)
0.42∗∗∗ (0.36)
0.41∗∗∗ (0.36)
0.42∗∗∗ (0.36)
0.34∗∗∗ (0.40)
Telecommunications (5)
0.40∗∗∗ (0.37)
0.44∗∗∗ (0.34)
0.46∗∗∗ (0.34)
0.45∗∗∗ (0.34)
0.36∗∗∗ (0.40)
Utilities (5)
0.36∗∗∗ (0.38)
0.44∗∗∗ (0.34)
0.38∗∗∗ (0.37)
0.39∗∗∗ (0.37)
0.34∗∗∗ (0.39)
Note: The table reports the average inter-sector bipower correlations in basis points for 60minute windows (from 10 minutes before until 50 minutes after) around FOMC announcements on days of the 77 scheduled FOMC meetings from May 1997 to October 2006, with standard deviations given in parentheses. Columns headed ‘Rate increase (decrease)’ show average correlations following the announcement of an increase (decrease) of the Federal funds target rate. Columns headed ‘Positive (negative) surprise’ show average correlations following a positive (negative) surprise in the target rate change, where the surprise is computed as the difference between the closing price of the nearby Fed funds futures contract one day before the announcement and on the announcement day itself. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate significance at the 1%, 5% and 10% level, respectively.
71
Table A.43: Mean change of intra-sector bipower correlations following FOMC announcements All
Rate Rate increase decrease (23 obs) (12 obs)
(77 obs)
Positive Negative surprise surprise (28 obs) (26 obs)
All stocks (100 stocks)
0.19∗∗∗ (0.50)
0.23∗∗∗ (0.49)
0.24∗∗∗ (0.49)
0.22∗∗∗ (0.48)
0.21∗∗∗ (0.52)
Consumer Discretionary (15)
0.18∗∗∗ (0.53)
0.23∗∗∗ (0.52)
0.24∗∗∗ (0.53)
0.23∗∗∗ (0.50)
0.21∗∗∗ (0.55)
Consumer Staples (11)
0.17∗∗∗ (0.52)
0.22∗∗∗ (0.49)
0.25∗∗∗ (0.46)
0.22∗∗∗ (0.47)
0.16∗∗∗ (0.56)
Energy (6)
0.10∗∗∗ (0.48)
0.07∗ (0.46)
0.15∗∗ (0.47)
0.16∗∗∗ (0.48)
0.07∗∗∗ (0.47)
Financials (14)
0.24∗∗∗ (0.47)
0.32∗∗∗ (0.46)
0.26∗∗∗ (0.47)
0.27∗∗∗ (0.43)
0.25∗∗∗ (0.50)
Health Care (10)
0.17∗∗∗ (0.50)
0.19∗∗∗ (0.48)
0.25∗∗∗ (0.48)
0.22∗∗∗ (0.47)
0.18∗∗∗ (0.50)
Industrials (14)
0.17∗∗∗ (0.51)
0.20∗∗∗ (0.48)
0.23∗∗∗ (0.51)
0.18∗∗∗ (0.48)
0.23∗∗∗ (0.52)
IT (13)
0.18∗∗∗ (0.49)
0.23∗∗∗ (0.46)
0.18∗∗∗ (0.46)
0.20∗∗∗ (0.47)
0.21∗∗∗ (0.50)
Materials (7)
0.15∗∗∗ (0.53)
0.20∗∗∗ (0.53)
0.27∗∗∗ (0.49)
0.20∗∗∗ (0.49)
0.14∗∗∗ (0.57)
Telecommunications (5)
0.22∗∗∗ (0.49)
0.21∗∗∗ (0.42)
0.30∗∗∗ (0.43)
0.29∗∗∗ (0.47)
0.18∗∗∗ (0.51)
Utilities (5)
0.20∗∗∗ (0.54)
0.26∗∗∗ (0.50)
0.19∗∗∗ (0.56)
0.27∗∗∗ (0.53)
0.15∗∗∗ (0.55)
Note: The table reports the average daily change of intra-sector bipower correlations in basis points during 60-minute windows (from 10 minutes before until 50 minutes after) around FOMC announcements on days of the 77 scheduled FOMC meetings from May 1997 to October 2006, with standard deviations given in parentheses. Columns headed ‘Rate increase (decrease)’ show average correlations following the announcement of an increase (decrease) of the Federal funds target rate. Columns headed ‘Positive (negative) surprise’ show average correlations following a positive (negative) surprise in the target rate change, where the surprise is computed as the difference between the closing price of the nearby Fed funds futures contract one day before the announcement and on the announcement day itself, as given in (A.1). The superscripts ∗∗∗ ∗∗ , , and ∗ indicate significance at the 1%, 5% and 10% level, respectively.
72
Table A.44: Mean change of inter-sector bipower correlations following FOMC announcements All
Rate Rate increase decrease (23 obs) (12 obs)
(77 obs)
Positive Negative surprise surprise (28 obs) (26 obs)
All stocks (100 stocks)
0.19∗∗∗ (0.52)
0.22∗∗∗ (0.50)
0.25∗∗∗ (0.50)
0.22∗∗∗ (0.50)
0.20∗∗∗ (0.53)
Consumer Discretionary (15)
0.18∗∗∗ (0.53)
0.22∗∗∗ (0.51)
0.25∗∗∗ (0.51)
0.22∗∗∗ (0.50)
0.20∗∗∗ (0.54)
Consumer Staples (11)
0.18∗∗∗ (0.52)
0.23∗∗∗ (0.50)
0.25∗∗∗ (0.50)
0.23∗∗∗ (0.49)
0.19∗∗∗ (0.55)
Energy (6)
0.17∗∗∗ (0.51)
0.16∗∗∗ (0.49)
0.25∗∗∗ (0.50)
0.20∗∗∗ (0.51)
0.18∗∗∗ (0.51)
Financials (14)
0.20∗∗∗ (0.50)
0.25∗∗∗ (0.49)
0.26∗∗∗ (0.50)
0.24∗∗∗ (0.48)
0.23∗∗∗ (0.52)
Health Care (10)
0.18∗∗∗ (0.51)
0.22∗∗∗ (0.50)
0.24∗∗∗ (0.49)
0.22∗∗∗ (0.50)
0.19∗∗∗ (0.52)
Industrials (14)
0.18∗∗∗ (0.51)
0.21∗∗∗ (0.49)
0.25∗∗∗ (0.50)
0.21∗∗∗ (0.49)
0.21∗∗∗ (0.53)
IT (13)
0.19∗∗∗ (0.51)
0.24∗∗∗ (0.50)
0.24∗∗∗ (0.50)
0.23∗∗∗ (0.50)
0.20∗∗∗ (0.53)
Materials (7)
0.17∗∗∗ (0.53)
0.20∗∗∗ (0.52)
0.25∗∗∗ (0.50)
0.21∗∗∗ (0.51)
0.19∗∗∗ (0.55)
Telecommunications (5)
0.21∗∗∗ (0.52)
0.27∗∗∗ (0.51)
0.30∗∗∗ (0.47)
0.26∗∗∗ (0.49)
0.20∗∗∗ (0.53)
Utilities (5)
0.20∗∗∗ (0.54)
0.25∗∗∗ (0.51)
0.28∗∗∗ (0.51)
0.24∗∗∗ (0.53)
0.19∗∗∗ (0.55)
Note: The table reports the average daily change of inter-sector bipower correlations in basis points during 60-minute windows (from 10 minutes before until 50 minutes after) around FOMC announcements on days of the 77 scheduled FOMC meetings from May 1997 to October 2006, with standard deviations given in parentheses. Columns headed ‘Rate increase (decrease)’ show average correlations following the announcement of an increase (decrease) of the Federal funds target rate. Columns headed ‘Positive (negative) surprise’ show average correlations following a positive (negative) surprise in the target rate change, where the surprise is computed as the difference between the closing price of the nearby Fed funds futures contract one day before the announcement and on the announcement day itself, as given in (A.1). The superscripts ∗∗∗ ∗∗ , , and ∗ indicate significance at the 1%, 5% and 10% level, respectively.
73
Table A.45: Response of intra-sector bipower correlations to actual target rate changes and surprises Rate Changes β
R2
Surprises & Expected β
γ
R2
Surprise, Expected & Reversal β
γ
δ
R2
2.28∗∗∗ (0.58)
0.06 (0.13)
1.97 (2.26)
0.06
All stocks (100)
0.36∗∗∗ 0.02 (0.14)
2.30∗∗∗ (0.59)
Cons. Discr. (15)
0.41∗∗ 0.02 (0.19)
3.41∗∗∗ −0.02 0.05 (0.72) (0.18)
3.42∗∗∗ −0.04 (0.72) (0.18)
4.23 (3.14)
0.07
Cons. Staples (11)
0.41∗∗ 0.02 (0.19)
1.85∗∗ (0.74)
0.22 0.04 (0.22)
1.81∗∗ (0.75)
0.18 (0.22)
4.06 (4.90)
0.05
1.92∗∗ (0.87)
−0.25 0.04 (0.31)
1.95∗∗ (0.88)
−0.29 (0.31)
15.74 (15.09)
0.05
0.25 0.04 (0.17)
1.88∗ (0.99)
0.22 (0.17)
2.99∗ (1.72)
0.06
−1.41 (5.65)
0.05
0.03 (0.22)
7.39∗ (4.29)
0.06
−0.01 (0.19)
2.59 (1.73)
0.04
Energy (6)
−0.02 (0.26)
0.02
0.08 0.04 (0.14)
Financials (14)
0.54∗∗∗ 0.03 (0.17)
1.87∗ (0.99)
Health Care (10)
0.20 (0.17)
0.01
3.06∗∗∗ −0.11 0.04 (0.75) (0.18)
3.06∗∗∗ −0.11 (0.76) (0.18)
Industrials (14)
0.36∗ (0.19)
0.02
2.54∗∗∗ (0.74)
0.07 0.04 (0.21)
2.54∗∗∗ (0.74)
IT (13)
0.21 (0.17)
0.02
1.56 (1.06)
0.01 0.03 (0.19)
1.54 (1.06)
Materials (7)
0.56∗∗ 0.04 (0.22)
1.76∗ (0.94)
0.35 0.05 (0.23)
1.63∗∗ (0.80)
0.37∗ −23.72∗∗ (0.20) (10.89)
0.06
Telecomm. (5)
0.31 (0.24)
0.01
1.43 (1.02)
0.10 0.03 (0.26)
1.36 (1.00)
0.18 −25.59∗∗ (0.26) (11.66)
0.05
Utilities (5)
0.22 (0.36)
0.03
−0.32 (2.24)
0.36 0.04 (0.41)
−0.48 (2.18)
0.34 −20.39 (0.41) (15.56)
0.07
Note: The table shows the results from regressions of the daily change in 60-minute bipower correlations on absolute Federal funds rate changes (equation (A.14)), on absolute surprises and absolute expected rate changes (equation (A.15)), and on absolute surprises and absolute expected rate changes allowing for different effects of ‘reversal’ decisions (equation (A.16)). The models are estimated using the bipower correlations between individual stocks belonging to the same sector following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks.
74
Table A.46: Response of inter-sector bipower correlations to actual target rate changes and surprises Rate Changes β
R2
Surprises & Expected β
γ
R2
Surprise, Expected & Reversal β
γ
δ
R2
All stocks (100)
0.40∗∗∗ 0.02 (0.13)
2.16∗∗∗ (0.54)
0.14 0.04 (0.15)
2.14∗∗∗ (0.52)
0.13 (0.12)
−0.74 (1.97)
0.06
Cons. Discr. (15)
0.44∗∗∗ 0.02 (0.15)
2.59∗∗∗ (0.57)
0.13 0.05 (0.15)
2.57∗∗∗ (0.56)
0.11 (0.13)
−0.45 (2.31)
0.06
Cons. Staples (11)
0.39∗∗∗ 0.02 (0.14)
2.09∗∗∗ (0.54)
0.15 0.04 (0.16)
2.08∗∗∗ (0.53)
0.13 (0.15)
2.28 (2.51)
0.06
Energy (6)
0.24 (0.18)
2.34∗∗∗ −0.06 0.05 (0.39) (0.23)
2.37∗∗∗ −0.10 (0.29) (0.15)
3.71 (2.68)
0.07
Financials (14)
0.42∗∗∗ 0.02 (0.14)
2.16∗∗∗ (0.68)
0.15 0.04 (0.14)
2.16∗∗∗ (0.66)
0.12 (0.11)
1.76 (1.22)
0.06
Health Care (10)
0.30∗∗ 0.02 (0.13)
2.25∗∗∗ (0.54)
0.06 0.04 (0.15)
2.23∗∗∗ (0.54)
0.04 (0.14)
−0.89 (2.76)
0.05
Industrials (14)
0.42∗∗∗ 0.02 (0.15)
2.31∗∗∗ (0.59)
0.14 0.04 (0.16)
2.29∗∗∗ (0.58)
0.13 (0.15)
1.61 (2.48)
0.06
IT (13)
0.40∗∗∗ 0.02 (0.13)
1.89∗∗∗ (0.69)
0.18 0.04 (0.16)
1.85∗∗∗ (0.67)
0.16 (0.14)
0.06 (2.49)
0.05
Materials (7)
0.42∗∗ 0.02 (0.17)
2.45∗∗∗ (0.70)
0.11 0.05 (0.24)
2.41∗∗∗ (0.60)
0.13 −11.25∗∗∗ 0.06 (0.16) (2.52)
Telecomm. (5)
0.53∗∗∗ 0.03 (0.16)
1.80∗∗∗ (0.60)
0.30∗ 0.05 (0.17)
1.77∗∗∗ (0.59)
0.31∗ (0.17)
−7.46∗∗ (3.57)
0.06
Utilities (5)
0.39∗∗ 0.02 (0.18)
0.92 (0.95)
0.34∗ 0.04 (0.21)
0.87 (0.93)
0.33 (0.21)
−5.79∗ (3.19)
0.06
0.02
Note: The table shows the results from regressions of the daily change in 60-minute bipower correlations on absolute Federal funds rate changes (equation (A.14)), on absolute surprises and absolute expected rate changes (equation (A.15)), and on absolute surprises and absolute expected rate changes allowing for different effects of ‘reversal’ decisions (equation (A.16)). The models are estimated using the bipower correlations between individual stocks belonging to different sectors following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks.
75
76 2.83∗∗ (1.42) −0.62 (2.63)
0.83 (9.28) −4.01 (8.22) −2.02 (8.21) 6.28 (8.06) 1.12 (8.57)
3.40 (8.20)
26.15∗∗∗ (4.70)
15.23∗∗ (6.01)
14.77∗∗ (6.11)
19.61∗∗∗ (4.24)
14.39 (8.84)
27.99∗∗∗ −13.07 (8.11) (10.74)
24.52∗∗ (10.89)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
10.67 (16.48)
15.37 (12.13)
1.59 (2.23)
−0.30 (1.57)
1.17 (1.60)
3.39∗∗∗ 11.06 (0.97) (13.38)
0.37 (1.09)
2.58∗∗ (1.04)
−0.84 (1.77)
0.94 (2.20)
0.75 (1.37)
−0.61 (1.45)
11.55 (8.58)
9.10 (8.72)
17.44∗∗ (8.32)
14.25 (12.73)
10.17 (8.42)
0.98 (1.40)
0.42 (0.88)
β2
12.39∗ (7.26)
2.16 (1.49)
3.04∗∗∗ (0.77)
2.81∗∗∗ (0.96)
3.68∗∗∗ (0.88)
1.38 (1.18)
3.22∗∗∗ (0.81)
15.17∗ (8.48)
13.19∗∗ (6.08)
α2
−12.34 (16.77)
−18.55 (11.56)
−19.86∗ (11.13)
3.01∗ (1.69)
7.19∗ (3.93)
0.24 (5.57)
4.14∗∗ (1.90)
17.61 (13.89)
4.97 (5.56)
6.60∗∗ (2.75)
3.42 (2.13)
δ
0.09
0.11
0.08
0.08
0.09
0.08
0.09
0.09
0.08
0.10
0.09
R2
0.36
0.01
0.09
0.23
0.51
0.19
0.03
0.21
0.06
0.03
0.02
α1 = α2
0.52
0.14
0.24
0.18
0.05
0.87
0.02
0.86
0.13
0.05
0.02
β1 = β2
0.12
0.04
0.23
0.39
0.08
0.22
0.05
0.27
0.16
0.08
0.03
α1 = α2 β1 = β2
Note: The table shows the results from the regression of the daily change in 60-minute bipower correlations on absolute surprises in Federal funds rate changes allowing for different effects of positive and negative surprises, and for different effects of ‘reversal’ decisions (equation (A.17)). The model is estimated using the bipower correlations between individual stocks belonging to the same sector for the 77 FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. Negative and positive surprises occur in 26 and 28 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
−6.31 (17.48)
−11.08 (12.07)
−9.88 (10.04)
17.97∗∗∗ (5.51)
Cons. Staples (11)
4.16∗∗∗ (0.77)
−1.38 (7.37)
12.02∗∗ (5.78)
Cons. Discr. (15)
3.14∗∗∗ (0.71)
−1.73 (6.11)
β1
17.40∗∗∗ (4.18)
α1
All stocks (100)
α0
Wald tests
Table A.47: Asymmetric response of intra-sector bipower correlations to positive and negative surprises
77
−1.11 (6.59) −0.36 (6.86) −3.70 (7.71) −0.06 (6.33) 0.99 (6.70) −1.31 (6.80) 0.99 (6.92) −0.54 (6.73) −1.45 (8.50) −7.01 (8.23)
17.01∗∗∗ (4.33)
13.67∗∗∗ (4.79)
17.55∗∗∗ (4.54)
14.13∗∗∗ (4.74)
18.74∗∗∗ (4.28)
18.09∗∗∗ (4.40)
15.70∗∗∗ (4.80)
16.96∗∗∗ (4.02)
13.82∗∗ (5.72)
22.87∗∗∗ (5.27)
23.73∗∗∗ −4.31 (6.53) (10.27)
All stocks (100)
Cons. Discr. (15)
Cons. Staples (11)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
1.48 (1.26)
3.27∗∗∗ (0.73)
3.56∗∗∗ (0.71)
2.62∗∗∗ (0.91)
3.06∗∗∗ (0.70)
2.44∗∗∗ (0.55)
2.96∗∗∗ (0.82)
2.60∗∗∗ (0.69)
2.83∗∗∗ (0.61)
3.37∗∗∗ (0.68)
2.88∗∗∗ (0.67)
β1
4.64 (10.23)
11.05 (8.46)
15.23∗ (8.19)
12.69∗∗ (6.32)
11.01 (6.84)
6.54 (7.47)
13.15∗∗ (6.45)
9.17 (7.85)
9.47 (6.59)
13.88∗∗ (6.65)
11.16∗ (6.47)
α2
1.77 (1.26)
0.70 (0.86)
0.36 (0.85)
0.64 (0.87)
0.70 (0.89)
1.79∗ (0.97)
0.46 (1.07)
0.92 (1.11)
1.21 (0.82)
0.90 (1.00)
0.90 (0.85)
β2
−4.11 (5.91)
−4.68 (4.86)
−9.22∗∗ (3.58)
0.91 (2.86)
2.70 (2.73)
−0.51 (3.60)
2.55 (2.84)
5.36 (3.51)
3.56 (3.65)
1.45 (2.65)
0.57 (2.98)
δ
0.08
0.10
0.10
0.08
0.09
0.08
0.09
0.11
0.09
0.10
0.09
R2
0.42
0.05
0.05
0.07
0.15
0.32
0.08
0.22
0.09
0.03
0.08
α1 = α2
0.87
0.02
0.00
0.11
0.04
0.56
0.06
0.20
0.12
0.04
0.07
β1 = β2
0.41
0.07
0.01
0.18
0.12
0.59
0.15
0.40
0.22
0.08
0.15
α1 = α2 β1 = β2
Note: The table shows the results from the regression of the daily change in 60-minute bipower correlations on absolute surprises in Federal funds rate changes allowing for different effects of positive and negative surprises, and for different effects of ‘reversal’ decisions (equation (A.17)). The model is estimated using the bipower correlations between individual stocks belonging to different sectors for the 77 FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. Negative and positive surprises occur in 26 and 28 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
α1
α0
Wald tests
Table A.48: Asymmetric response of inter-sector bipower correlations to positive and negative surprises
78
3.98∗∗∗ (1.35) 6.02∗∗∗ (1.60) 1.79 (1.30) −0.44 (3.29) 4.18∗∗ (2.04) 5.05∗∗∗ (1.71) 4.22 (3.28) 4.42∗∗∗ (1.26) −0.14 (2.55) 1.66 (2.70) −0.10 (3.89)
15.65∗∗∗ (3.08) 9.44∗∗ (4.45) 14.62∗∗∗ (4.67) 14.33 (8.86) 22.33∗∗∗ (4.44) 14.18∗∗∗ (4.79) 14.86∗∗ (6.05) 17.05∗∗∗ (3.09) 14.71∗∗ (7.10) 26.91∗∗∗ (7.65) 21.15∗∗ (9.47)
10.97∗∗∗ (3.42) 7.12 (6.04) 6.29 (8.02) −21.96 (37.32) 22.64∗∗∗ (6.74) 11.91∗ (6.72) 6.76 (4.77) 11.60 (9.67) 16.98∗ (9.32) 30.70∗∗∗ (11.83) 17.10 (26.11)
α1 2.85∗∗∗ (0.50) 3.53∗∗∗ (0.64) 3.53∗∗∗ (0.66) 3.53 (2.59) 2.28∗∗ (1.14) 2.88∗∗∗ (0.77) 3.43∗∗∗ (0.59) 1.77 (1.38) 2.57∗∗∗ (0.85) 1.59 (1.38) 0.84 (3.47)
β1 27.00∗∗∗ (8.22) 18.98 (12.83) 34.20∗∗∗ (8.87) 3.72 (9.82) 32.71∗∗∗ (8.44) 21.62∗∗∗ (8.22) 26.98∗∗∗ (8.13) 30.49∗∗∗ (7.35) 29.50 (22.44) 40.08∗∗∗ (9.59) 33.19∗∗ (14.92)
α2
δ
2.32 1.37 (2.70) (2.11) 3.78 2.33 (4.47) (3.45) −1.52 4.61 (2.37) (4.67) 0.87 15.31 (6.21) (15.15) ∗∗ 5.11 2.23∗∗ (2.54) (1.05) 1.38 −1.32 (3.64) (5.76) 2.22 7.15∗ (3.05) (4.28) 1.78 2.90 (2.78) (2.23) −0.78 −24.83∗ (4.18) (13.54) −4.16 −25.50∗∗ (11.09) (12.96) 7.32 −25.62∗ (8.60) (15.29)
β2
0.11
0.09
0.11
0.08
0.10
0.10
0.12
0.10
0.09
0.13
0.10
R2
0.59
0.54
0.60
0.13
0.03
0.36
0.35
0.51
0.02
0.40
0.07
α1 = α2
0.49
0.61
0.43
1.00
0.70
0.69
0.31
0.69
0.04
0.96
0.85
β1 = β2
0.39
0.80
0.69
0.13
0.03
0.65
0.05
0.80
0.04
0.50
0.08
α1 = α2 β1 = β2
where ∆F (BP Cijt ) is the difference between the Fisher-transformed bipower correlation between stocks i and j during the 60-minute window starting 10 minutes before the target rate decision is made public and during the same window on the day before, St is the surprise as defined in (A.1), ∆F Ft is the actual target rate change, D(A) is a dummy variable taking the value 1 if the event A is true and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for the bipower correlations between individual stocks belonging to the same sector following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. Target rate decreases and increases occur in 12 and 23 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
∆F (BP Cijt ) = (α0ij + β0ij |St |)D(∆F Ft = 0) + (α1ij + β1ij |St |)D(∆F Ft < 0) + (α2ij + β2ij |St |)D(∆F Ft > 0) + δij |St |REVt + εijt ,
Note: The table shows results for the regression
Utilities (5)
Telecomm. (5)
Materials (7)
IT (13)
Industrials (14)
Health Care (10)
Financials (14)
Energy (6)
Cons. Staples (11)
Cons. Discr. (15)
All stocks (100)
β0
α0
Wald tests
Table A.49: Asymmetric response of intra-sector bipower correlations to surprises following target rate decreases and increases
79
15.82∗∗∗ (3.54) 12.72∗∗∗ (3.78) 15.94∗∗∗ (3.85) 16.53∗∗∗ (4.74) 18.57∗∗∗ (3.39) 15.54∗∗∗ (3.64) 14.48∗∗∗ (4.35) 15.20∗∗∗ (2.73) 15.10∗∗∗ (4.77) 20.26∗∗∗ (4.93) 18.01∗∗∗ (6.38)
α1
3.27∗∗ 9.37∗∗ (1.44) (4.58) ∗∗∗ 3.95 8.71∗ (1.44) (4.51) ∗ 2.46 7.39 (1.43) (4.87) 2.90∗ −22.91∗∗ (1.52) (8.98) 3.40∗∗ 12.31∗ (1.51) (6.77) ∗∗∗ 3.80 8.37 (1.33) (5.75) 3.40∗ 9.43∗∗ (1.95) (3.80) ∗∗∗ 3.56 12.51∗∗ (1.17) (6.00) 3.28 11.14∗∗ (2.05) (4.42) 1.61 19.25∗∗∗ (1.92) (4.71) 2.94 27.97∗∗∗ (2.75) (8.66)
β0 2.96∗∗∗ (0.54) 3.21∗∗∗ (0.56) 3.29∗∗∗ (0.45) 4.44∗∗∗ (0.81) 2.93∗∗∗ (0.83) 2.95∗∗∗ (0.42) 3.08∗∗∗ (0.48) 2.38∗∗∗ (0.76) 3.02∗∗∗ (0.46) 2.79∗∗∗ (0.54) 1.20 (1.17)
β1 27.73∗∗∗ (9.34) 24.62∗∗ (10.80) 29.99∗∗∗ (10.30) 15.25∗∗∗ (4.12) 28.23∗∗∗ (9.57) 27.24∗∗∗ (8.96) 26.85∗∗∗ (8.69) 28.87∗∗∗ (8.96) 29.05∗∗∗ (10.62) 35.58∗∗∗ (7.56) 35.75∗∗∗ (8.02)
α2 1.27 (2.78) 2.08 (3.52) 0.43 (2.85) 2.11 (3.03) 2.26 (2.79) 0.67 (2.91) 1.51 (2.88) 2.20 (3.16) 0.25∗∗∗ (0.00) −0.07 (3.52) −1.58 (4.99)
β2 −1.06 (3.11) −1.03 (3.00) 2.23 (3.92) 2.55 (2.81) 1.54 (3.97) −0.90 (3.23) 1.53 (3.22) −0.20 (2.50) −11.77∗∗∗ (0.00) −8.39∗∗ (4.26) −5.64 (4.54)
δ
0.10
0.11
0.11
0.10
0.11
0.10
0.11
0.12
0.10
0.11
0.11
R2
0.51
0.07
0.12
0.13
0.06
0.07
0.17
0.00
0.05
0.17
0.08
α1 = α2
0.59
0.42
0.95
0.59
0.44
0.82
0.46
0.32
0.75
0.55
β1 = β2
0.77
0.18
.
0.15
0.14
0.18
0.25
0.00
0.12
0.30
0.13
α1 = α2 β1 = β2
where ∆F (BP Cijt ) is the difference between the Fisher-transformed bipower correlation between stocks i and j during the 60-minute window starting 10 minutes before the target rate decision is made public and during the same window on the day before, St is the surprise as defined in (A.1), ∆F Ft is the actual target rate change, D(A) is a dummy variable taking the value 1 if the event A is true and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for the bipower correlations between individual stocks belonging to different sectors following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. Target rate decreases and increases occur in 12 and 23 cases, respectively. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
∆F (BP Cijt ) = (α0ij + β0ij |St |)D(∆F Ft = 0) + (α1ij + β1ij |St |)D(∆F Ft < 0) + (α2ij + β2ij |St |)D(∆F Ft > 0) + δij |St |REVt + εijt ,
Note: The table shows results for the regression
Utilities (5)
Telecomm. (5)
Materials (7)
IT (13)
Industrials (14)
Health Care (10)
Financials (14)
Energy (6)
Cons. Staples (11)
Cons. Discr. (15)
All stocks (100)
α0
Wald tests
Table A.50: Asymmetric response of inter-sector bipower correlations to surprises following target rate decreases and increases
80
2.66∗∗∗ 27.55∗∗ (0.82) (14.05)
13.06 (17.80) 0.94 (26.69)
1.64 (1.17)
3.85∗∗∗ (0.67) 2.59∗∗∗ (0.54) 0.98 (1.01) 2.31∗∗ (0.90) 0.87 (0.90)
9.64∗∗∗ (3.66) 29.31∗∗∗ (3.43) 17.01∗∗∗ (3.64) 19.65∗∗∗ (3.74) 24.09∗∗∗ (3.20) 14.75∗∗∗ (5.48) 29.17∗∗∗ (5.03) 29.00∗∗∗ −0.86 (7.54) (2.42)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
22.09 (15.47)
−2.30 (13.35)
5.51 (6.14)
12.65 (9.85)
4.27 (2.79)
4.74∗∗ (2.26)
1.96 (1.80)
5.18∗∗∗ (1.76)
3.73∗∗ (1.68)
1.23 (1.31)
1.70 (3.42)
2.65 (1.76)
3.18∗∗ (1.49)
3.99∗ (2.12)
3.30∗∗ (1.55)
β2
−15.55 (15.12)
−25.81∗∗ (11.20)
−21.58∗∗ (10.88)
2.88 (1.80)
7.97∗∗ (4.06)
−2.26 (5.42)
3.22∗ (1.69)
13.15 (9.84)
4.34 (4.95)
3.58 (3.10)
2.08 (2.03)
δ
0.06
0.08
0.07
0.06
0.07
0.07
0.07
0.05
0.05
0.09
0.07
R2
0.31
0.38
0.65
0.05
0.05
0.68
0.90
0.20
0.34
0.16
0.06
α1 = α2
0.17
0.11
0.86
0.04
0.52
0.08
0.79
0.63
0.57
0.95
0.65
β1 = β2
0.38
0.20
0.87
0.10
0.06
0.00
0.61
0.36
0.59
0.06
0.01
α1 = α2 β1 = β2
where ∆F (BP Cijt ) is the difference between the Fisher-transformed bipower correlation between stocks i and j during the 60-minute window starting 10 minutes before the target rate decision is made public and during the same window on the day before, St is the surprise as defined in (A.1), N BERt is a dummy variable taking the value 1 for announcements during recessions, defined according to the NBER turning point dates, and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for the bipower correlations between individual stocks belonging to the same sector following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. Six announcement occur during the NBER-defined recession between March 2001 and November 2001. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
∆F (BP Cijt ) = (α1ij + β1ij St )(1 − N BERt ) + (α2ij + β2ij St )N BERt + δij St REVt + εijt ,
Note: The table shows results for the regression
2.26∗∗∗ 5.53 (0.67) (13.11)
18.57∗∗∗ (3.95)
Cons. Staples (11) −9.38 (14.38)
3.85∗∗∗ −3.17 (0.67) (13.42)
16.09∗∗∗ (3.31)
Cons. Discr. (15)
7.36 (6.56)
2.55∗∗∗ (0.48)
α2
20.82∗∗∗ (2.62)
β1
All stocks (100)
α1
Wald tests
Table A.51: Asymmetric response of intra-sector bipower correlations to surprises in expansions and recessions
81
2.86 (2.17)
17.08∗∗∗ 2.27∗∗∗ 11.34 (2.56) (0.57) (11.50) 17.71∗ (9.67) 6.13 (8.14) 10.74∗∗ (5.25) 11.65∗ (6.63) 21.36∗∗ (8.81) 22.61∗∗ (8.95) 12.27∗ (7.30)
22.67∗∗∗ 2.36∗∗∗ (2.77) (0.49) 19.73∗∗∗ 2.81∗∗∗ (2.97) (0.48) 19.02∗∗∗ 2.54∗∗∗ (3.02) (0.44) 20.67∗∗∗ 2.00∗∗∗ (2.75) (0.61) 17.69∗∗∗ 2.55∗∗∗ (3.53) (0.50) 23.90∗∗∗ 2.13∗∗∗ (3.60) (0.46) 25.09∗∗∗ 1.28 (4.52) (1.09)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
3.10∗∗∗ (1.13)
2.94∗∗ (1.43)
2.62∗ (1.37)
3.32∗∗∗ (1.28)
3.18∗∗ (1.44)
2.50∗∗∗ (0.79)
3.14∗∗∗ (0.88)
0.06
0.07
0.06
0.07
0.07
0.07
0.07
0.07
R2
−4.42 (3.52)
−6.21∗ (3.37)
0.06
0.07
−10.69∗∗∗ 0.08 (2.96)
0.68 (2.30)
2.39 (2.62)
−1.37 (2.61)
2.04 (2.14)
2.59 (2.27)
2.51 (2.55)
−0.18 (2.15)
−0.39 (2.21)
δ
0.14
0.89
0.70
0.21
0.17
0.12
0.62
0.63
0.08
0.18
0.25
α1 = α2
0.25
0.59
0.96
0.35
0.67
0.73
0.82
0.99
0.44
0.69
0.65
β1 = β2
0.32
0.75
0.80
0.45
0.21
0.00
0.81
0.79
0.17
0.17
0.38
α1 = α2 β1 = β2
where ∆F (BP Cijt ) is the difference between the Fisher-transformed bipower correlation between stocks i and j during the 60-minute window starting 10 minutes before the target rate decision is made public and during the same window on the day before, St is the surprise as defined in (A.1), N BERt is a dummy variable taking the value 1 for announcements during recessions, defined according to the NBER turning point dates, and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. The model is estimated for the bipower correlations between individual stocks belonging to different sectors following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. Six announcement occur during the NBER-defined recession between March 2001 and November 2001. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
∆F (BP Cijt ) = (α1ij + β1ij St )(1 − N BERt ) + (α2ij + β2ij St )N BERt + δij St REVt + εijt ,
Note: The table shows results for the regression
2.29 (1.46)
8.99∗ (5.25)
19.61∗∗∗ 2.38∗∗∗ (3.04) (0.46)
Cons. Staples (11)
3.63∗∗ (1.66)
4.84 (9.08)
17.70∗∗∗ 2.95∗∗∗ (2.80) (0.49)
Cons. Discr. (15)
3.03∗∗ (1.31)
β2
11.83∗ (6.59)
α2
20.04∗∗∗ 2.41∗∗∗ (2.76) (0.45)
β1
All stocks (100)
α1
Wald tests
Table A.52: Asymmetric response of inter-sector bipower correlations to surprises in expansions and recessions
82 41.50∗∗∗ 0.89 (8.36) (1.14) 22.67 (15.20)
0.89 (4.30) 4.36∗∗∗ (1.49) 3.16∗∗∗ (1.08) 5.29∗∗ (2.12) 3.34∗∗∗ (1.19)
10.93 (7.49) 29.37∗∗∗ (4.31) 17.37∗∗∗ (4.69) 18.35∗∗∗ (5.36) 21.94∗∗∗ (3.60) 18.46∗∗∗ −0.68 (5.55) (1.28) 25.77∗∗∗ −0.08 (6.47) (1.99) 30.73∗∗∗ −1.40 (8.62) (3.59)
Energy (6)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
1.79∗ (0.98)
0.37 (2.66)
2.45∗∗ (0.98)
19.69∗∗∗ 1.12 (6.02) (1.14)
16.55∗∗∗ 2.52∗∗∗ (5.83) (0.72)
17.24∗∗∗ 2.48∗∗∗ (5.77) (0.78)
20.10∗∗∗ 2.48∗∗ (4.37) (1.06)
4.51 (7.55)
15.73∗∗∗ 2.85∗∗∗ (4.97) (0.58)
−17.75 (15.39)
−25.15∗∗ (11.60)
−21.48∗∗ (10.54)
0.97 (1.90)
6.59 (4.03)
−3.16 (5.47)
1.54 (1.84)
12.21 (14.88)
5.47 (4.96)
2.67 (3.46)
1.07 (2.23)
δ
0.08
0.08
0.06
0.06
0.08
0.07
0.08
0.07
0.06
0.09
0.07
R2
0.64
0.14
0.97
0.75
0.82
0.99
0.13
0.55
0.50
0.59
0.67
α1 = α2
0.69
0.67
0.05
0.18
0.22
0.61
0.30
0.84
0.13
0.09
0.22
β1 = β2
0.89
0.09
0.05
0.19
0.12
0.76
0.03
0.82
0.31
0.20
0.11
α1 = α2 β1 = β2
where ∆F (BP Cijt ) is the difference between the Fisher-transformed bipower correlation between stocks i and j during the 60-minute window starting 10 minutes before the target rate decision is made public and during the same window on the day before, St is the surprise as defined in (A.1), EM Pt is a dummy variable taking the value 1 for announcements during recessions and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. A recession is defined to start (end) when there are three consecutive monthly declines (increases) in nonfarm payroll employment. The model is estimated for the bipower correlations between individual stocks belonging to the same sector following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. 20 announcement occur during the recession period between March 2001 and August 2003. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
∆F (BP Cijt ) = (α1ij + β1ij St )(1 − EM Pt ) + (α2ij + β2ij St )EM Pt + δij St REVt + εijt ,
Note: Note: The table shows results for the regression
18.90∗ (9.86)
0.73 (1.28)
20.48∗∗∗ (4.92)
Cons. Staples (11)
16.40∗∗∗ 2.70∗∗∗ (5.27) (0.70)
5.33∗∗∗ (1.41)
12.68∗∗∗ (4.38)
Cons. Discr. (15)
17.93∗∗∗ 2.27∗∗∗ (3.27) (0.53)
β2
3.58∗∗∗ (0.94)
α2
19.98∗∗∗ (3.44)
β1
All stocks (100)
α1
Wald tests
Table A.53: Asymmetric response of intra-sector bipower correlations to surprises in expansions and recessions
83
0.97 0.82
−2.02 (2.83) 1.41 (2.76) −0.39 (2.57)
23.23∗∗∗ 3.05∗∗∗ 17.53∗∗∗ 2.60∗∗∗ (3.42) (0.86) (4.32) (0.73) 14.93∗∗∗ 2.48∗∗∗ (5.00) (0.43)
18.80∗∗∗ 3.38∗∗∗ 16.38∗∗∗ 2.51∗∗∗ (3.90) (1.12) (4.43) (0.57)
21.01∗∗ (8.58)
19.44∗∗∗ 3.15∗∗ (3.43) (1.25) 17.76∗∗∗ 2.36∗∗∗ 18.02∗∗∗ 2.66∗∗∗ −10.89∗∗∗ 0.08 (4.37) (0.00) (5.90) (0.62) (2.68) 23.74∗∗∗ 2.63∗∗∗ (6.29) (0.65)
21.19∗∗∗ 2.19∗ (3.69) (1.15)
25.54∗∗∗ 0.86 (4.60) (1.56) 25.27∗∗∗ 1.90 (5.61) (2.79)
Financials (14)
Health Care (10)
Industrials (14)
IT (13)
Materials (7)
Telecomm. (5)
Utilities (5)
1.77 (1.16)
−5.04 (4.45)
−6.63∗ (3.81)
2.42 (2.97)
0.07
0.08
0.07
0.07
0.07
0.08
0.07
0.68
0.68
0.31
0.30
0.43
0.37
0.96
0.29
0.36
0.49
0.82
0.69
0.95
0.61
0.67
0.89
β1 = β2
0.88
0.53
.
0.58
0.38
0.55
0.22
0.68
0.67
0.78
0.77
α1 = α2 β1 = β2
where ∆F (BP Cijt ) is the difference between the Fisher-transformed bipower correlation between stocks i and j during the 60-minute window starting 10 minutes before the target rate decision is made public and during the same window on the day before, St is the surprise as defined in (A.1), EM Pt is a dummy variable taking the value 1 for announcements during recessions and 0 otherwise, and REVt is a 0-1 dummy variable indicating whether or not a ‘reversal’ decision was taken in the meeting at time t. A recession is defined to start (end) when there are three consecutive monthly declines (increases) in nonfarm payroll employment. The model is estimated for the bipower correlations between individual stocks belonging to different sectors following the 77 scheduled FOMC meetings between May 1997 and October 2006, and are aggregated to the sector level by taking averages. 20 announcement occur during the recession period between March 2001 and August 2003. The superscripts ∗∗∗ , ∗∗ , and ∗ indicate statistical significance at the 1%, 5% and 10% level, respectively, based on the standard errors given in parentheses, which allow for heteroskedasticity as well as correlation of residuals across stocks. Columns headed ‘Wald tests’ contain p-values of Wald statistics for testing the indicated restrictions for the average coefficients (allowing for heteroskedasticity as well as correlation of residuals across stocks).
∆F (BP Cijt ) = (α1ij + β1ij St )(1 − EM Pt ) + (α2ij + β2ij St )EM Pt + δij St REVt + εijt ,
Note: Note: The table shows results for the regression
0.94
0.07
0.89 (2.24)
2.31∗∗∗ (0.51)
12.61∗∗ (5.30)
17.96∗∗∗ 2.52 (4.21) (3.67)
Energy (6)
19.88∗∗∗ 1.86∗∗∗ (4.59) (0.64)
1.20 (4.04)
15.86∗∗∗ 2.64∗∗∗ (3.97) (0.42)
0.82
20.84∗∗∗ 1.77 (3.95) (1.63)
0.08
Cons. Staples (11)
−0.70 (2.62)
0.58
α1 = α2
15.80∗∗∗ 2.69∗∗∗ (4.16) (0.57)
0.07
R2
17.09∗∗∗ 3.36∗∗ (3.81) (1.46)
−1.13 (2.60)
δ
Cons. Discr. (15)
β2
17.22∗∗∗ 2.44∗∗∗ (4.27) (0.52)
α2
20.28∗∗∗ 2.66∗ (3.56) (1.44)
β1
All stocks (100)
α1
Wald tests
Table A.54: Asymmetric response of inter-sector bipower correlations to surprises in expansions and recessions
