When no news is good news - The decrease in investor fear after the FOMC announcement

We examine the impact of Federal Open Market Committee announcements on the intraday dynamics of the VIX and VIX futures. We find that at the time of the announcement the VIX and VIX futures decline significantly. We observe that the decline in the VIX and VIX futures after the announcement is not instantaneous but gradual, lasting for about 45 min. The magnitude of the decline in the VIX and VIX futures is strongly negatively related to an increase in realized volatility at the time of the announcement. Finally, we explore the potential economic profits that could be obtained from the observed reaction of the VIX futures to the announcement, and show that a strategy that goes short in the nearest term VIX future at the start of a trading day and closes out at the end of that day generates an average return of 10% p.a.