Relief Rallies after FOMC Announcements as a Resolution of Uncertainty

We find substantial positive average stock returns after FOMC announcements accompanied by the release of the Summary of Economic Projections (SEP) and press conference by the Fed Chair. Both SEPs and press conferences contain new information that moves financial markets. We show that several measures of uncertainty are significantly higher on days of FOMC announcements accompanied by SEP and press conference than on announcement days without SEP and press conference. Controlling for changes in uncertainty measured by VIX changes, the positive unconditional mean returns after the FOMC announcements with SEP and press conference disappear. We also find that stocks correlated with market uncertainty shocks have higher returns on days of FOMC meetings with SEP and press conference. These results suggest that the positive post-announcement stock market returns are related to resolution of uncertainty.