The Pre-Monetary Policy Announcement Drift on the Stockholm Stock Exchange

Sammanfattning: This thesis investigates the existence and properties of pre-monetary policy announcement drifts on the Stockholm Stock Exchange. While previous literature has mainly focused on U.S. financial markets and monetary policy, our study investigates how monetary policy announcements made by the Federal Open Market Committee, the European Central Bank and the Swedish Riksbank affect the Swedish stock market. We document a significant 0.48% drift in equities on the Stockholm Stock Exchange in the day preceding Federal Open Market Committee monetary policy announcements. In addition, we document that monetary policy announcements made by the other central banks are not preceded by similar drifts. We employ a risk- based explanatory model that incorporates volatility- and liquidity risk, but fail to attribute the pre-FOMC announcement drift to changes in either metrics. Finally, we show that the pre-FOMC announcement drift appears to have diminished after information regarding its existence was made public in 2011. This final piece of suggestive evidence points towards the drift being a result of inefficient markets, rather than being a compensation for increased systematic risk.