Corporate Bonds Distress and FOMC Announcement Returns

Corporate Bonds Distress and FOMC Announcement Returns

• Author
• Tommaso Baglioni
• Co-authors
• Ruy M. Ribeiro
• Abstract

• This paper documents that the ex-ante level of the corporate bond market distress is a good predictor for the pre-FOMC announcement return, subsuming the relevant information of equity market uncertainty highlighted by the previous literature. We compute the orthogonal components of distress and uncertainty, and we find that only distress can predict the pre-announcement return, which tends to be positive (negative) when distress is high (low), regardless of the level of uncertainty. These results hold also after 2011, when the average pre-announcement return is flat, but it is possible to predict it using distress.

• Keywords
• Corporate Bonds Distress; FOMC Announcements; Pre-FOMC Announcement Return; Post-FOMC Announcement Return
• Subject Area
• Asset pricing, investments, and Derivatives

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