Equity · United States · CFDs, ETFs, futures · Monthly · United States Free

The FOMC Cycle Effect

Academic paper

AuthorsAnna Cieślak; Adair Morse; Annette Vissing‐Jørgensen

Institute

Duke University
National Bureau of Economic Research
?Duke University - Fuqua School of Business
?National Bureau of Economic Research (NBER)
University of California, Berkeley
?University of California, Berkeley - Haas School of Business
Federal Reserve Board of Governors
?Federal Reserve Board

Paper linkhttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=2687614

Strategy in a nutshell

The strategy targets the S&P 500 via ETFs, funds, futures, or CFDs. The investor goes long during FOMC cycle weeks (weeks 0, 2, 4, and 6) and holds cash during the remaining weeks. The FOMC cycle begins the day before a scheduled announcement and resets with each of the eight annual FOMC meetings.

Economic rationale

Stock returns exhibit a biweekly cyclical pattern influenced by the Federal Reserve Board of Governors. While there are eight scheduled FOMC meetings annually, the board holds approximately 30 meetings per year, creating predictable even-week return patterns that this strategy exploits.

Backtest performance

Annualised return12.15%

Volatility13.15%

Beta0.566

Sharpe ratio0.92

Sortino ratio0.25

Win rate58%

Full Python code

1from AlgorithmImports import *
2class TheFOMCCycleEffect(QCAlgorithm):
3def initialize(self) -> None:
4self.set_start_date(2000, 1, 1)
5self.set_cash(100_000)
6
7self.symbol: Symbol = self.add_equity("SPY", Resolution.MINUTE).symbol
8csv_string_file: str = self.download('data.quantpedia.com/backtesting_data/economic/fed_days.csv')
9dates: List[str] = csv_string_file.split('\r\n')
10dates_before_fed: List[datetime.date] = [(datetime.strptime(x, "%Y-%m-%d") - BDay(1)).date() for x in dates]
11
12self.trade_flag: bool = False
13self.days_to_switch_positions: bool = 5
14
15self.schedule.on(self.date_rules.on(dates_before_fed), self.time_rules.after_market_open(self.symbol, 1), self.day_before_FED)
16self.schedule.on(self.date_rules.every_day(self.symbol), self.time_rules.after_market_open(self.symbol, 1), self.rebalance)
17
18def day_before_FED(self) -> None:
19self.set_holdings(self.symbol, 1)
20self.days_to_switch_positions = 5
21self.trade_flag = True
22def rebalance(self) -> None:
23if self.trade_flag:
24    if self.days_to_switch_positions == 0:
25        if self.portfolio[self.symbol].is_long:
26            self.liquidate(self.symbol)
27        else:
28            self.set_holdings(self.symbol, 1)
29        
30        self.days_to_switch_positions = 5
31    self.days_to_switch_positions -= 1