A reexamination of market returns, discount rate changes, and market efficiency

Abstract

This paper examines stock market reaction to Federal Reserve discount rate change announcements. By using hourly data, I am able to demonstrate that market reaction occurs only in the hour of announcement and only for those announcements that contain new information regarding macroeconomic policy. These results are robust even under the pre-1979 Federal funds rate-targeting policy contrary to the findings of Smirlock and Yawitz (1985).