The S&P 500 behavior near the official Federal Open Market Committee Meetings

Abstract

This thesis examines the behavior of the globally recognized US equity index, the S&P 500, around the times of the official monetary meetings where short-term policy rates may be amended, potentially influencing financial market dynamics across various sectors of the economy, including equity markets. The research is run on daily data of over 13 thousand observations in 1971 to 2022 when there were 454 official meetings of the US Federal Open Market Committee. The whole period was divided into in-sample and out-of-sample observations. In-samples start two weeks before the FOMC meetings and ends one week afterward. Furthermore, the time horizon was split into the monetary policy’s non-transparent period in 1971 – 1994 and the Federal Reserve system public-open transparent period ever since. The research also involved an analysis of stock behavior in sub-periods of economic boom and crises over time. Every trading day with stock performance and monetary policy was run via particular models to identify the anticipated and unanticipated part of changes in monetary policy rates.