Anomaly Returns and FOMC

We find that anomaly returns are generally unchanged during FOMC days, though a small group of anomalies may have substantial changes. But if they do, their changes exacerbate pricing errors. Hence, our evidence challenges existing studies that find that the CAPM performs better over the FOMC period. In reconciliation, we find further that, similar to existing studies, stocks do respond more to their market betas on announcement days than non-announcement days, and it is just that the alphas are not mitigated. For the exacerbated negative pricing errors, we argue that decreased participation of retail investors contributes to the decline of the profitability