Biweekly performance of low-risk anomalies over the FOMC cycle

Yun, Jaesun and Kwon, Kyung Yoon (2023) Biweekly performance of low-risk anomalies over the FOMC cycle. Finance Research Letters, 58 (Part C). 104498. ISSN 1544-6123 (https://doi.org/10.1016/j.frl.2023.104498)

[thumbnail of Yun-Kwon-FRL-2023-Biweekly-performance-of-low-risk-anomalies-over-the-FOMC-cycle-3] Text. Filename: Yun-Kwon-FRL-2023-Biweekly-performance-of-low-risk-anomalies-over-the-FOMC-cycle-3.pdf
Accepted Author Manuscript
Restricted to Repository staff only until 24 September 2024.
License: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 logo
Download (456kB) | Request a copy

Abstract

This paper examines how the performance of low-risk anomalies varies over the FOMC cycle as they are expected to be weaker as uncertainty is resolved following an FOMC meeting. We form a low-minus-high risk portfolio or betting-against-risk (BAR) portfolio, mimicking low-risk anomalies, using four proxies of risk, and find the biweekly pattern of returns for all four BAR portfolios after the FOMC meeting consistent with Cieslak et al. (2019). Taking advantage of the FOMC meeting schedule being known in advance, we propose dynamic BAR strategies. We find that the dynamic BAR strategy significantly outperforms the original low-minus-high risk portfolio.

CORE (COnnecting REpositories)