Published online by Cambridge University Press: 08 October 2018
In an effort to increase transparency, the chair of the Federal Reserve now holds a press conference (PC) following some, but not all, Federal Open Market Committee (FOMC) announcements. Evidence from financial markets shows that investors lower their expectations of important decisions on days without PCs and that these announcements convey less price-relevant information. Correspondingly, we show that investors pay more attention to upcoming announcements with PCs. This coordination of attention can reduce welfare in models of the social value of public information. Consistent with theories of investor attention, the market risk premium is larger on days with PCs.
We thank Daniel Andrei (the referee), Bruce Carlin, Murray Carlson, Millicent Chang, Jennifer Conrad (the editor), Silvio Contessi, Adlai Fisher, Neal Galpin, Li Ge, Thomas Gilbert, Bruce Grundy, Brian Kelly, Ali Lazrak, Spencer Martin, Silvia Miranda-Agrippino, Pavel Savor, Yuehua Tang, Masahiro Watanabe, James Yae, Jun Yang, and seminar participants at Arizona State University, the Bundenbank, McGill University, Université Laval, the 2016 China International Finance Conference, the 2016 meeting of the European Finance Association, the 2016 Financial Management Association Asia/Pacific Conference, the 2016 Financial Markets and Corporate Governance Conference, the 2016 Financial Institutions Conference, the 2017 Western Finance Association Regulation and Corporate Governance Conference, and the 2016 Accounting and Finance Association of Australia and New Zealand (AFAANZ) Conference for helpful comments and suggestions. We also thank Jeremy Lao and Agha Mirza of CME Group for providing FedWatch support and data. Martineau gratefully acknowledges financial support from the Social Sciences and Humanities Research Council (SSHRC) of Canada, the Montreal Exchange, and the NASDAQ OMX Educational Foundation. Most of the research was done while Grégoire was affiliated with the University of Melbourne.