"The Puzzling Pre-FOMC Announcement 'Drift'"
For many years, economists have struggled to explain the “equity premium puzzle”—the fact that the average return on stocks is larger than what would be expected to compensate for their riskiness. In this post, which draws on our recent New York Fed staff report, we deepen the puzzle further. We show that since 1994, more than 80 percent of the equity premium on U.S. stocks has been earned over the twenty-four hours preceding scheduled Federal Open Market Committee (FOMC) announcements (which occur only eight times a year)—a phenomenon we call the pre-FOMC announcement “drift.”
This seems very interesting and will no doubt lead to at least a few other papers in finance. One caution: a lot of these surprising stock market results tend to disappear either with further analysis or time. Remember all the hoopla a year ago about "Don't invest in stocks when Congress is in session"? That one was intriguing enough that a mutual fund was created to follow that advice. Here's its recent performance.