Saturday, August 10, 2013

How S&P 500 reacts on FOMC statements and how to profit from it

I've gathered a list of FOMC statement dates and made some research about how S&P 500 index closes those days. Dates are from 2000, totally 113 dates. Market changes I used are logarithmic, normalized on monthly historical volatility. Here you can see the daily market reaction on a FOMC statement. Horizontal scale - days relative to the statement, vertical scale - index daily normalized change.



As you can see, the FOMC statement day usually results in market growth. Ok, but how reliable this result is, maybe it is just a data artifact? I've made some calculations and found out that a probability to get this value +0.32 randomly is 0.0055. Seems good enough for me.


Ok, since the market growth on statement, why not construct a strategy to make money on it? Let’s buy the day before the statement and sell the day of statement. Here is an equity of such a trading system:

No transaction costs included, so additional research is required before it gets trade-able.

Here is the list of FOMC statement dates, maybe someone would want to check it for errors/completeness.


20000202
20000321
20000516
20000628
20000822
20001003
20001115
20001219
20010131
20010320
20010515
20010627
20010821
20011002
20011106
20011211
20020130
20020319
20020507
20020625
20020813
20020924
20021106
20021210
20030129
20030318
20030506
20030625
20030812
20030916
20031028
20031209
20040128
20040316
20040504
20040630
20040810
20040921
20041110
20041214
20050202
20050322
20050503
20050630
20050809
20050920
20051101
20051213
20060131
20060328
20060510
20060629
20060808
20060920
20061025
20061212
20070131
20070321
20070509
20070628
20070807
20070918
20071031
20071211
20080121
20080130
20080310
20080318
20080430
20080625
20080805
20080916
20081007
20081029
20081216
20090128
20090318
20090429
20090624
20090812
20090923
20091104
20091216
20100127
20100316
20100428
20100509
20100623
20100810
20100921
20101103
20101214
20110126
20110315
20110427
20110622
20110809
20110921
20111102
20111213
20120125
20120313
20120425
20120620
20120801
20120913
20121024
20121212
20130130
20130320
20130501
20130619
20130731




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