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The impact of monetary policy on option-implied stock market expectations

Xiaoyu Wang (Florida State University, Tallahassee, Florida, USA)
Jia Zhai (University of Salford, Salford, UK)
Dejun Xie (Xi’an Jiaotong-Liverpool University, Suzhou, China)
Jingjing Jiang (Harbin Institute of Technology, Shenzhen, Shenzhen, China)

China Finance Review International

ISSN: 2044-1398

Article publication date: 10 July 2019

Issue publication date: 22 January 2020



The purpose of this paper is to investigate the impact of Federal Open Market Committee (FOMC) meetings and the changes of the target rates on stock market uncertainty.


Multivariate regression analysis is applied to the historical data of VIX, FOMC meetings and target rates. Subtle relations are revealed by further categorizing the FOMC meetings into being scheduled and unscheduled and distinguishing the signs of the changes in VIX and target rates. CPI and the prime rate are used for robustness test.


The authors first examine the relation between FOMC meetings and target surprises; the results indicate that unscheduled FOMC meetings heavily impact the target surprises. Then, the authors investigate the relation between FOMC meetings and VIX changes; the results show that both unscheduled and scheduled FOMC meetings impact VIX, where the impacts of scheduled FOMC meetings are more substantial. The authors also analyze the responses of VIX to the target surprises, and the results reveal that there is an asymmetric effect of target surprises on VIX, where the influences of the scheduled positive target surprises are more significant. Finally, by examining the relation between the FOMC meeting and the risk-neutral density of the VIX option, the authors conclude that both KURT and SKEW are more affected by unscheduled FOMC meetings.


Deeper dimensions of the relations between VIX, FOMC meetings and target rates are analyzed and more insightful understandings of such relations are gained.



The authors are very grateful to the two anonymous reviewers and the editors of CFRI for their valuable remarks, which have helped greatly in improving the earlier version of the paper. Thanks also to Dr Carlo Rosa at Federal Reserve Bank of Minneapolis for his valuable comments and suggestions to the work through discussions with Dr Jia Zhai.


Wang, X., Zhai, J., Xie, D. and Jiang, J. (2020), "The impact of monetary policy on option-implied stock market expectations", China Finance Review International, Vol. 10 No. 1, pp. 37-51.



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