The Impact of Federal Open Market Committee Statements on the Stock Prices of Industrial Sector Firms Listed in the Standard & Poor's 500
Susana-Amanda Vilchis-Camacho
Filiberto-Enrique Valdés-Medina
Minerva Martínez Ávila
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Abstract
The objective of this study is to determine the financial
impact of the statements and decisions of the Federal Open Market Committee (FOMC) on the stock returns of 56 issuers in the industrial sector of the S&P 500, an index relevant for its ability to represent the U.S. stock market. The hypothesis was tested using event study methodology, considering as event dates the Federal Reserve's monetary policy announcements regarding changes in the federal funds rate during the period from January 2021 to April 2023. The results allow for the rejection of the null hypothesis: FOMC announcements regarding interest rates do have a measurable impact on the stock market performance of the firms analyzed. The findings confirm that the Federal Reserve's monetary policy announcements affect the returns of industrial sector firms in the S&P 500, in a manner consistent with the semi-strong form of the efficient market hypothesis; however, the direction of the effect is closely linked to the prevailing macro-financial regime. In aggregate terms, the findings show that both the pace of monetary policy and its communication are relevant to the stock prices of S&P 500 industrial firms. The study provides useful empirical evidence for portfolio management, firm valuation, and risk management at the sectoral level.
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