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Invest with the Fed?

May 14, 2024 • Posted in Economic Indicators, Volatility Effects

Does Federal Reserve (Fed) policy strongly and differently affect individual stock? In his April 2024 paper entitled “Navigating Federal Reserve Policy with IFED”, Rufus Rankin analyzes performance of the Invest With the Fed (IFED) stock selection strategy, which selects portfolios positioned to prosper across environments signaled by Fed actions. Specifically, the strategy selects individual equities based on 12 factors, adjusting weights of these factors based on Fed policy signals. The strategy rebalances with Fed policy changes or in June when there is no policy change for a year. He looks at two indexes representing different versions of the strategy:

  1. IFED US-Large Cap Index (IFED-L), with the S&P 500 Index (S&P 500) as a benchmark.
  2. IFED US Large-Cap Low Volatility Index (IFED-LV), with the S&P 500 Low Volatility Index (S&P 500 LV) as a benchmark.

Using monthly returns during April 2002 through September 2023, he finds that: (more…)

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