Date: 18 April 2025, Friday
Time: 13.30 – 14.30
Place: MA-330
“Corporate Bond Market and The FOMC Cycle”
by
Gönül Çolak
University of Sussex Business School
Abstract
The prescheduled FOMC meetings and the related information release (monetary policy uncertainty) form cyclical patterns in the corporate bond market. We analyze how corporate bond returns and bond market liquidity vary in each week of this cycle. The bond returns during the even weeks are relatively higher than the odd week returns (for two successive FOMC cycle weeks), which is consistent with Cieslak et al.’s (2019) claim that Fed information production and decision-making are concentrated in the even weeks. The bond market liquidity does not display a biweekly pattern; instead, it increases in the weeks with close proximity to the FOMC announcement day and dries up in the middle of the cycle. When inter-dealer trades are removed, the liquidity pattern within the FOMC cycle reverses: the institutional traders (customers) seem to trade more often during the middle of the cycle when the monetary policy uncertainty is minimal. This suggests that institutional/customer trades, rather than inter-dealer trades, are more affected by the monetary policy uncertainty associated with the proximity to the FOMC meeting.
Another factor that shapes the corporate bond market patterns is the impact of unanticipated monetary policy shocks on weekly bond excess returns. The unanticipated changes in FFR and the policy news shock capturing forward guidance are both negatively affecting bond returns.
This effect is not confined only to the week of the FOMC announcement, and instead, it shows certain persistence within the cycle. We further find that proximity to FOMC announcement day as a monthly risk factor is priced in the cross-sectional bond returns.
Bio
Gonul Colak is a Professor of Accounting and Finance, currently serving as the Head of the Department of Accounting and Finance at the University of Sussex. Between September 2022 and November 2024, he also served as the Director of Research in the same department. Since January 2022, he has held a fractional Professor of Finance position at Hanken School of Economics, where he served as the director of the PhD program in finance. Recently, he was a visiting scholar at Stern School of Business in New York University, Fordham University, and Turkish Central Bank’s Istanbul School of Central Banking in Turkey. Previously, he held academic positions at Florida State University and Wichita State University. He also served as the chairman of the Graduate School of Finance (GSF) in Finland and was a member of the board in the Nordic Finance Network (NFN). He was also a member of the international advisory board of Sebelas Maret University in Indonesia for a period of three years. He currently serves as an associate editor for the Journal of Financial Stability and The Financial Review.
His past academic work focused on corporate restructurings, equity issuance, political uncertainty, financial econometrics, firm capital structure, and corporate governance. He has publications in high-quality journals such as Review of Financial Studies, Journal of Financial Economics, Journal of International Business Studies, Journal of Financial and Quantitative Analysis, Review of Accounting Studies, Journal of Business Ethics, Journal of Financial Intermediation, and Journal of Corporate Finance. According to Scopus, his published work has been cited more than 1200 times, some of which are in high-impact journals. His current research interests cover a variety of topics, such as external financing of firms, CEO incentives, financial accounting, exchange delistings, investor relations, ESG/CSR, financial intermediation and banking, and monetary policy transmission.