The Fed and stock market returns.
I really, really don't understand the City / Wall Street, but this one really is gobsmacking.
Almost all of the equity premium puzzle (that the return on stocks is greater than it should be given their level of risk) appears to be explained by the rise in share prices in the 24 hours ahead of the Fed's announcements eight times a year. Astonishing.
More to read on this here:
For many years, economists have struggled to explain the â€œequity premium puzzleâ€â€”the fact that the average return on stocks is larger than what would be expected to compensate for their riskiness.