Hard News, Soft News, and the S&P 500 Variance Risk Premium on FOMC Statement Days
Open Access
- Author:
- Aguirre Torres, Andres
- Area of Honors:
- Interdisciplinary in Economics and Finance
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Mihail Velikov, Thesis Supervisor
Sung Jae Jun, Thesis Honors Advisor
Brian Spangler Davis, Thesis Honors Advisor - Keywords:
- Economics
Finance
S&P 500
FOMC
Variance Risk Premium - Abstract:
- This thesis examines whether the S&P 500 variance risk premium (VRP) on Federal Open Market Committee (FOMC) statement days reflects only futures-based monetary policy surprises or also the tone of the FOMC statement. I use a VIX-based proxy for implied variance and forward realized variance over the next 22 trading days for 78 scheduled FOMC events from 2016 to 2025. To clarify, I compare a hard-news surprise measure (the first principal component of ED1–ED4 futures changes) with two soft-news tone measures: one from the Loughran–McDonald dictionary, and one from FinBERT. After controlling for pre-meeting volatility, neither the conventional surprise measure nor the dictionary-based tone measure explains cross-meeting changes in meeting day VRP, while the FinBERT tone measure does. Specifically, more positive FinBERT statement language is associated with a lower VRP. These results show that contextual language models capture market-relevant information in FOMC communications better than either dictionary-based tone measures or futures-based surprise factors.
Accessible Version in Progress
We're generating an accessible version of this file to meet ADA Title II requirements. This process may take up to one hour. Please return later to access the accessible copy once it's ready.
You can still download the current version by clicking "OK".
What's happening:
An accessible PDF is being generated using Adobe with AI used to generate alternative text (alt text) for images in the PDF.