Weekly Research Insights - Trading Around Macro Announcements

Profiting From Resolution of Uncertainty

Hi there. This week, I discuss an exciting topic: The risk premia around macroeconomic announcements. Most investors believe that markets digest news gradually. But what if nearly all of the equity premium is delivered not slowly over time, but in just a handful of days when macroeconomic news hits the tape?

A growing body of research highlights a striking fact: Returns on a small set of scheduled macro days, such as FOMC meetings or employment reports, explain the majority of long-term stock returns. This pattern has persisted across decades, geographies, and asset classes. I’ve previously covered the FOMC drift and how it can be exploited through equities or short volatility trades, yielding Sharpe ratios of 0.6 to 0.8 and annualized returns of 8–14%, despite trading only 6% of the time.

This post shifts the focus to regular macro announcements. I discuss the latest research on this topic and test a simple strategy around non-farm payroll releases, finding respectable returns and Sharpe ratios.

More details below.