The minutes issued following the decisions made at scheduled meetings of the Federal Open Market Committee (FOMC). Historically, the Federal Reserve has used OMOs to adjust the supply of reserve balances to hold the federal funds rate. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market operations.
The Federal Open Market Committee (FOMC) consists of twelve members-- seven members of the Board of Governors of the Federal Reserve System; President of the Federal Reserve Bank of New York; and four of the remaining eleven central bank governors who serve one-year terms on a rotating basis4. Treasuries and money market futures in anticipation of a monetary policy decision made at a scheduled meeting of the Federal Open Market Committee (FOMC) since the 1980s. The dummy variable for scheduled pre-FOMC announcement windows equals one and zero otherwise.
A related literature, Global Asset Prices and FOMC Announcements by Joshua Hausman and Jon Wongswan of the Board of Governors of the Federal Reserve System (2006). They classified types of monetary policy into 2 types, which are the change to the current target rate of federal funds (target surprise) and the revision of the path of future monetary policy (path surprise) They found that the different respond to different asset classes and different components of the monetary policy surprises. The result of the regression shows that the Thai stock index has a statistically significant 5% for both surprises.
Another literature, The Financial Market Effect of FOMC Minutes by Carlo Rosa, economist at the Federal Reserve Bank of New York, examines whether and to what extent the financial market effect of monetary news reported at the meeting of the Federal Open Market Committee (FOMC) was released, days by looking at asset price volatility and trading volume in a narrow window.
DATA AND METHODOLOGY
Data
I classify the market situation as bull market year or bear market year by calculating the SET return of that year. If the return of the SET index in that year is more than zero, it is a bull market year. Whereas if the SET index's return in that year is less than zero, it is a bear market year.
For the net trading balance for each type of investor, I calculated by taking the daily buy volume minus the daily sell volume and then dividing this amount by the summation of the daily buy volume plus daily sell volume. I further study to examine the SET return in anticipation of the FOMC announcement without the effect of Thai news by excluding the July 3, 1997 FOMC minutes because it was the day after the Bank of Thailand's decision to float the Thai baht. Set Smart for daily SET index, buy and sell volume from each investor type, industry index.
The table provides the number of positive and negative news from FOMC minutes, number of Thai interest policy announcement dates.
Methodology
EMPIRICAL RESULTS
- Positive & Negative news of FOMC announcement on SET index returns
- FOMC announcements impact on SET index returns exclude the incident on the July 3, 1997 since it was the day after the Bank of
- The response of SET index returns in anticipation of FOMC announcement in good year and bad year of investment
- The reaction of different investor types in participation in FOMC announcements
- FOMC announcements impact on each industry indices
- Correlation between SET index returns and the trading of investors and market conditions in anticipation in FOMC announcements
Compare the returns on the day of the event (one day before the FOMC announcements) with the cumulative returns before the event (five days before the FOMC announcements) and after the event (five days after the FOMC announcements). The average return on the day of the event is higher than the cumulative return on FOMC windows on positive news and vice versa. You could argue that the result from the previous table is statistically significantly dependent on the FOMC announcements.
The result differs slightly from Table 4.1, with a higher statistical significance level on the day of negative news. In Table 4.3, I classify the market situation into good year and bad year using the SET index return for that year, calculated with the following equation; The average returns in Table 4.3 are statistically significant only on the date of the event or one day immediately before the FOMC announcement on both market conditions.
On the contrary, the average return of positive news in a bear market yields higher returns than in a bull market. To explain the result, I examine the difference in average returns under these two market conditions that is shown in the Diff row. The average cumulative net trading volume of this type of investor is significant on negative news for the five days before, at the event and five days after the announcements.
Looking at the positive news, foreign investors and local individuals respond statistically significantly to the announcements in the five days following the event. In other words, during the five-day periods after the announcement, the foreign investors are sellers and the local individuals are buyers in the market at the 5% significant level. The result in Table 4.5 shows consistent results with Table 4.1 and Table 4.2 that only the average returns at the event have statistically significant with the FOMC announcements.
All mean returns have a 1% significance level on the event date for both positive and negative events. Only consumption index that has a 5% significant level on the event date on a negative event. As can be seen in Tables 4.6 and 4.7, the industrial index shows a strong correlation between a stock economically related to global consumption and international news.
The results in Tables 4.8 and 4.9 imply that stock market investors appear to exhibit a patterned behavior when investing in stocks, anticipating negative news rather than positive news. Where rᴂt denotes the cum-dividend yield on the SET index relative to the FOMC announcements.
OTHER EXPLANATIONS
