Abstract
This paper finds that short sellers hedge their risks associated with FOMC
announcements by substantially adjusting their open positions and increasing
short volume around these meetings. The findings suggest that investors use
this strategy to mitigate cash flow risks in stocks associated with monetary
policy shifts. Notably, interest rate shocks and changes in the growth of the
fundamentals in the economy do not play a considerable role on the short
side of the market during the FOMC cycle. I find that short volume remains
unaffected by the direction of monetary policy. Given shocks associated with
higher cash flow risk, FOMC announcements lead to a sharper decline in
open short positions following interest rate cuts, potentially due to reduced
borrowing costs. Additionally, I document that substantial changes in the
long trading volume is mostly driven by shocks to the expectations about the
overall growth of the economy.
announcements by substantially adjusting their open positions and increasing
short volume around these meetings. The findings suggest that investors use
this strategy to mitigate cash flow risks in stocks associated with monetary
policy shifts. Notably, interest rate shocks and changes in the growth of the
fundamentals in the economy do not play a considerable role on the short
side of the market during the FOMC cycle. I find that short volume remains
unaffected by the direction of monetary policy. Given shocks associated with
higher cash flow risk, FOMC announcements lead to a sharper decline in
open short positions following interest rate cuts, potentially due to reduced
borrowing costs. Additionally, I document that substantial changes in the
long trading volume is mostly driven by shocks to the expectations about the
overall growth of the economy.
| Originalsprache | Englisch |
|---|---|
| Seitenumfang | 51 |
| Publikationsstatus | In Vorbereitung - 2025 |