| Abstract: | This paper examines the effect of the information content of Federal Open Market Committee (FOMC) statements on the level and volatility of Treasuries and stock returns. Statements are separated into “informative” and “uninformative” groups with informative statements delivering important information which was not previously anticipated by the consensus. We find evidence that the information content of FOMC statements tends to generate an asymmetric response, with informative statements having a larger effect than uninformative statements. Asymmetries tend to be more pronounced for the conditional mean than conditional volatility. The behavior of volatility is tent‐shaped, spiking during policy announcements and declining before and after the release. We also find that the evolution of the language of the FOMC statements does matter to market participants and that joint releases of target rate changes and informative statements have a distinctly more pronounced impact than other types of announcements. (JEL E52, E58, E65, G12, G14) |
