When Bankers Go to Hail : Insights on Fed-Bank Interactions from Taxi Cab Data

We introduce taxi cab ridership between the Federal Reserve Bank of New York and large financial institutions headquartered in New York City as a novel proxy for Fed activity. A market timing strategy that buys the market portfolio (risk-free asset) when lagged Fedbank ridership is low (high) earns a 50% larger Sharpe ratio than the market portfolio. The strategy’s superior performance is especially pronounced around FOMC meetings. We also find highly statistically significant evidence that late-night meetings at the New York Fed and lunchtime offsite interactions increase around FOMC meetings, which suggests increased opportunities for Federal Reserve information to flow to markets along informal or discreet channels. We are grateful to Marianne Bertrand, Bob DeYoung, Elyas Elyasiani, Zhiguo He, Ivan Ivanov, Bryan Kelly, Elisabeth Kempf, Paul Koch, Randall Kroszner, David Lucca, Felix Meschke, Joe Peek, Jon Scott, Amit Seru, Azeem Shaikh, James Traina, Harald Uhlig, Mihail Velikov, Annette Vissing-Jørgensen, Michael Weber, Jide Wintoki, Linghang Zeng (discussant), Luigi Zingales, Eric Zwick, seminar participants at Chicago Booth, the University of Kansas, and Temple University, as well as participants at Stevanovich Center’s Market Microstructure & High Frequency Data conference, the Bank of Canada’s Workshop on Data Science for Central Banks, and the 2018 Northern Finance Association (Charlevoix) for their helpful discussions and comments. We also thank individuals who provided insights into the conduct of business in New York City and Weijia Zhao for verifying some of the code and econometric derivations. The George J. Stigler Center for the Study of the Economy and the State and the Lynde and Harry Bradley Foundation provided generous support to David Finer for this work, and The University of Chicago Booth School of Business and the Liew Fama-Miller Fellowship were generous sources of general funding. Jared Williams gratefully acknowledges financial support from the Muma College of Business Center for Analytics and Creativity. We thank Ken French for sharing data on his website. All errors are our own. ∗Department of Finance, University of South Florida, Tampa, FL 33620, 813.974.6358, danbradley@usf.edu †The University of Chicago Booth School of Business, Chicago, IL 60637, dfiner@chicagobooth.edu ‡Department of Finance, Penn State University, State College, PA 16802, 814.867.4042, mtg15@psu.edu §Department of Finance, University of South Florida, Tampa, FL 33620, 813.974.6316, jwilliams25@usf.edu