SPECULATORS have always sought ways to anticipate shifts in share prices. Once they scrutinised rail-carriage movements to get a jump on business trends. A recent paper* concludes that since 1994, a shrewd approach would have been to focus on the Federal Reserve.

It is no surprise that meetings of the Federal Open Market Committee (FOMC), in which Fed governors and regional Fed presidents set interest-rate policy, can trigger rises and falls in the stockmarket. But the study analyses a remarkable correlation. Usually every fortnight between FOMC meetings, fresh information is discussed in a gathering of Fed governors. It finds that all the gains in the stockmarket have occurred, on average, in the weeks of the FOMC meetings and the ones that involve the governors alone. A dollar invested only during those weeks would have grown more than 12-fold over the period. A dollar invested during other weeks would have lost half its value (see chart).

To check their results, the authors explored potential correlations such as company earnings and economic data. They found none that were as statistically significant. They speculate that there is a causal connection, selective disclosure, which they say is unfair. Those who attend the meetings have informal contact with the media, consultancies and financial firms, and eventually the content...Continue reading