Abstract
We examine whether disclosed information from the Federal Reserve (Fed) affects investor expectations of monetary policy decisions and whether the disclosed information leads to the pre-Federal Open Market Committee (FOMC) announcement drift through investor expectations of monetary policy. We measure the tone of the Beige Books, speeches, and testimonies using text-mining techniques. We find that the tone of the Beige Books positively relates to federal funds rate (FFR) changes and expected FFR changes. We also find that expected FFR changes are negatively associated with stock market index returns in the 24 hours prior to FOMC announcement time. These results suggest that the Beige Book implies monetary policy changes and positively affects investor expectations. In addition, these results suggest that disclosed information from the Fed leads to pre-FOMC announcement drift though the investor expectations.
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