Unconventional monetary policy and the behavior of shorts

RePEc Short ID: pmc98
ORCID iD: 0000-0002-2389-7637

McInish, Thomas H.; Neely, Christopher J.; Planchon, Jade

doi:10.20955/wp.2017.031

Working Paper Revision

Unconventional monetary policy and the behavior of shorts

Abstract: We investigate the behavior of shorts, considered sophisticated investors, before and after a set of Federal Reserve unconventional monetary policy announcements that spot bond markets did not fully anticipate. Short interest in agency securities systematically predicts bond price changes and other asset returns on the days of monetary announcements, particularly when growth or monetary news is released, indicating shorts correctly anticipated these surprises. Shorts also systematically rebalanced after announcements in the direction of the announcement surprise when the announcement released monetary or growth news, suggesting that shorts interpreted these announcements to imply further yield changes in the same direction.

Keywords: Quantitative Easing; Treasury bond short interest; Monetary Policy; Large-Scale Asset Purchases (LSAP); Agency securities; Treasury securities; Great Recession;

JEL Classification: E4; E44; E52; G1; G18;

https://doi.org/10.20955/wp.2017.031