Annette Vissing-Jorgensen | Clausen Center

Annette Vissing-Jorgensen

Arno A. Rayner Chair in Finance and Management

Finance Department, Haas School of Business

Annette Vissing-Jorgensen holds the Arno A. Rayner Chair in Finance and Management at the Haas School of Business and is the chair for the finance group. Her research focuses on empirical asset pricing, monetary policy, household finance and entrepreneurship. Her research thus spans both asset pricing and corporate finance. She is a research associate in the NBER's Asset Pricing program, Monetary Economics program, and Economic Fluctuations and Growth program and is a research fellow in the CEPR's Financial Economics program. She is an Associate Editor of the Journal of Finance and (as of 2014) a director of both the American Finance Association and the European Finance Association.

Summary of recent papers:

The Economics of the Fed Put

Date: April11, 2017

Coauthor:  Anna Cieslak (Duke University, Fuqua School of Business)

Citation: Working Paper

This paper studies the impact of the stock market on the Federal Reserve’s monetary policy. It analyzes the economics behind the “Fed put,” i.e., the tendency for low stock returns to predict accommodating monetary policy. The paper shows that stock returns are a statistically more powerful predictor of Federal funds target changes than standard macroeconomic news releases. Using textual analysis of FOMC minutes and transcripts, the paper then argues that stock returns cause Fed policy. FOMC participants are more likely to be concerned about the stock market after market declines and the frequency of negative stock market mentions in FOMC documents predicts target rate cuts. The focus on the stock market reflects Fed’s concern about the consumption-wealth effect and about the impact of the stock market on investment, with less role for the stock market simply predicting (as opposed to driving) the economy. The paper assesses whether the Fed may be reacting too much to the stock market by (a) comparing the sensitivity to the stock market of the Fed’s growth, unemployment and inflation forecasts with the stock-market sensitivity of private sector forecasts, and (b) estimating whether the stock market impacts target changes even after controlling for Fed expectations of economic activity and inflation.

 

Stock Returns over the FOMC Cycle

Date: June 12, 2016

Coauthors:Anna Cieslak (Duke university), Adair Morse (UC Berkeley)

Citation: Working Paper

This paper documents that since 1994 the equity premium in the US and in the rest of the world is earned entirely in weeks 0, 2, 4 and 6 in FOMC cycle time, i.e. in time since the last Federal Open Market Committee meeting. This likely reflects a risk premium for news (about monetary policy or the macro economy) coming from the Federal Reserve: (1) The FOMC calendar is quite irregular and changes across sub-periods over which their finding is robust. (2) Even weeks in FOMC cycle time do not line up with important macro releases. (3) Volatility in the federal funds market peaks during even weeks in FOMC cycle time. (4) Information processing/decision making within the Fed tends to happen bi-weekly in FOMC cycle time: The bi-weekly cycle is driven mainly by even week observations that follow board meetings of the Board of Governors. Furthermore, before 1994, inter-meeting target changes were common and disproportionately took place during even weeks in FOMC cycle time. High return weeks do not line up with public information releases from the Federal Reserve or with the frequency of speeches by Fed officials. Systematic informal communication of Federal Reserve officials with the media and the financial sector is a more plausible information transmission mechanism. They discuss the social costs and benefits of this method of communication.