Excess returns: What has really been driving equities since 1994?

Some 80% of US stocks' excess returns since 1994 have been earned in the 24 hours prior to FOMC statements, according to the New York Federal Reserve.

Research from the New York Fed shows the run-up to the release of Federal Reserve policy statements - issued eight times a year - has provided the bulk of the equity risk premium over the past 18 years for the S&P 500. The equity risk premium, defined as the difference between the average return on the stock market and the yield on short-term government bonds, is therefore almost entirely down to markets' expectations of monetary policy action, the study implies. "Since 1994, there has been a large and statistically significant excess return on equities on days of scheduled FOMC annou...