Title

The Fed'S Policy Decisions And Implied Volatility

Abstract

This study examines how the Fed's monetary policy decisions affect the implied volatility of the S&P 500 index. The results show that stock market uncertainty is significantly affected by the Fed's policy decisions. In particular, we find that implied volatility generally decreases after FOMC meetings, while the relationship between target rate surprises and market uncertainty appears positive. However, our results also suggest that the apparent positive relationship between policy surprises and implied volatility is mostly driven by the volatility-reducing effects of negative surprises. We further document that implied volatility is affected by both scheduled and unscheduled policy actions, with the scheduled path surprises having the strongest impact on volatility. Finally, our findings indicate that the impact of monetary policy decisions on implied volatility is more pronounced during periods of expansive policy. © 2010 Wiley Periodicals, Inc..

Publication Date

10-1-2011

Publication Title

Journal of Futures Markets

Volume

31

Issue

10

Number of Pages

995-1010

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1002/fut.20503

Socpus ID

79960953819 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/79960953819

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