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Investor's sentiment in predicting the Effective Federal Funds Rate

Author

Listed:
  • Artem Meshcheryakov

    (San Jose State University)

  • Stoyu I Ivanov

    (San Jose State University)

Abstract
In this article we study if investor's sentiment measured by an intensity of Google searches may be used to predict future changes of the Effective Federal Funds rate. We find that online searches for “fed funds rate†, “fed interest rate†, “fed reserve†, “fed reserve rate†and “federal interest rate†are associated with next week decrease of the Effective Federal Funds Rate. Google searches for “fed rate hike†and “fed raise rates†are associated with next week increase of the Effective Federal Funds Rate even after we control for a number of macroeconomic indicators. We also find that intensity of Google searches is associated with the future decrease of volatility of the Effective Federal Funds rate. This finding can be explained by the reduction of information asymmetry about future changes that leads to a reduced volatility.

Suggested Citation

  • Artem Meshcheryakov & Stoyu I Ivanov, 2017. "Investor's sentiment in predicting the Effective Federal Funds Rate," Economics Bulletin, AccessEcon, vol. 37(4), pages 2767-2796.
    • Handle: RePEc:ebl:ecbull:eb-16-00751
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2017/Volume37/EB-17-V37-I4-P248.pdf
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    References listed on IDEAS

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    Cited by:

    1. Lee, Chien-Chiang & Chen, Mei-Ping, 2021. "The effects of investor attention and policy uncertainties on cross-border country exchange-traded fund returns," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 830-852.

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    More about this item

    Keywords

    effective federal funds rate; google search; internet search; investor attention; online search; federal reserve; federal rate; federal funds rate; investor; sentiment; anticipation; forecast; prediction;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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