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Author: John H. Boyd
Publisher:
ISBN:
Category : Economics
Languages : en
Pages : 41
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Book Description
We find that on average an announcement of rising unemployment is 'good news' for stocks during economic expansions and 'bad news' during economic contractions. Thus stock prices usually increase on news of rising unemployment, since the economy is usually in an expansion phase. We provide an explanation for this phenomenon. Unemployment news bundles two primitive types of information relevant for valuing stocks: information about future interest rates and future corporate earnings and dividends. A rise in unemployment typically signals a decline in interest rates, which is good news for stocks, as well as a decline in future corporate earnings and dividends, which is bad news for stocks. The nature of the bundle -- and hence the relative importance of the two effects -- changes over time depending on the state of the economy. For stocks as a group, and in particular for cyclical stocks, information about interest rates dominates during expansions and information about future corporate earnings dominates during contractions
Author: John H. Boyd
Publisher:
ISBN:
Category : Economics
Languages : en
Pages : 41
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Book Description
We find that on average an announcement of rising unemployment is 'good news' for stocks during economic expansions and 'bad news' during economic contractions. Thus stock prices usually increase on news of rising unemployment, since the economy is usually in an expansion phase. We provide an explanation for this phenomenon. Unemployment news bundles two primitive types of information relevant for valuing stocks: information about future interest rates and future corporate earnings and dividends. A rise in unemployment typically signals a decline in interest rates, which is good news for stocks, as well as a decline in future corporate earnings and dividends, which is bad news for stocks. The nature of the bundle -- and hence the relative importance of the two effects -- changes over time depending on the state of the economy. For stocks as a group, and in particular for cyclical stocks, information about interest rates dominates during expansions and information about future corporate earnings dominates during contractions
Author: John H. Boyd
Publisher:
ISBN:
Category :
Languages : en
Pages : 48
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Book Description
We find that on average an announcement of rising unemployment is quot;good newsquot; for stocks during economic expansions and quot;bad newsquot; during economic contractions. Unemployment news bundles three types of primitive information relevant for valuing stocks: information about future interest rates, equity risk premium, and corporate earnings and dividends. The nature of the information bundle - and hence the relative importance of the three effects - changes over time depending on the state of the economy. For stocks as a group, information about interest rates dominates during expansions and information about future corporate dividends and/or the equity risk premium dominates during contractions.
Author: John H. Boyd
Publisher:
ISBN:
Category :
Languages : en
Pages : 41
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Book Description
Author: John H. Boyd
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
We confirmBoyd et al.'s (2005) finding that on average a surprise increase in unemployment is quot;good newsquot; for stocks during economic expansions and quot;bad newsquot; during economic contractions. Unemployment news bundles information about future interest rates, equity risk premium, and corporate earnings. For stocks as a group information about interest rates dominates during expansions, and information about future earnings dominates during contractions. Hence, (a) ceteris paribus, the correlation between stock and bond returns will be greater during economic expansions and (b) stock price responses to the unemployment news will convey information about the state of the economy.
Author: Joost Driessen
Publisher:
ISBN:
Category :
Languages : en
Pages : 25
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Book Description
This paper analyzes the impact of unemployment news on stock markets throughout the business cycle. We show dependence of the reaction to the economic environment by studying the reaction in multiple economic environments that are defined based on both the level and momentum of economic activity. Applying the Campbell-Shiller decomposition combined with a VAR model, we attribute the stock market reactions on a daily basis to its main drivers: changes in the risk free rate, risk premium and dividends. The decomposition of daily returns shows that all three drivers are important determinants of announcement returns.
Author: He Huang
Publisher:
ISBN:
Category : Stock exchanges and current events
Languages : en
Pages : 25
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Book Description
Author: Zuliu Hu
Publisher: International Monetary Fund
ISBN: 1451850174
Category : Business & Economics
Languages : en
Pages : 30
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Book Description
Is the stock market responsive to macroeconomic news? This paper employs the daily returns of the Dow Jones Industrial Index, the S&P 500 index, the Russell 1000 index, and the Russell 2000 index to examine stock market reactions to a broad list of macroeconomic announcements, including money supply, inflation, employment, housing starts, and trade balances, etc. Several announcements concerning real economic activity that have received little attention in previous research are shown to have a significant impact on stock prices. The paper also presents preliminary evidence for the different reaction to macroeconomic news by small cap stocks and large cap stocks.
Author: Norbert Funke
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 38
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Book Description
Using daily data for the January 1997 to June 2002 period, we analyze the impact of a broad set of macroeconomic news on stock prices in the United States and Germany. With GARCH specifications we test five hypotheses and find that news on real economic activity has a significant impact on stock prices. The effects vary between different types of stocks and depend on the state of the economy. In a boom period, bad economic news may be good news for stock prices. For German stock prices, international news is at least as important as domestic news. The analysis of bihourly data suggests that the main effect occurs within a short period of time.
Author: John H. Boyd
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
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Book Description
Author: Tolga Cenesizoglu
Publisher:
ISBN:
Category : Journalism, Commercial
Languages : en
Pages : 392
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Book Description
There are probably only few other questions as central to economics as the question "How do market prices react to news?". The reaction of prices to new information has interested and puzzled economists since the early years of the field. This thesis addresses several dimensions of this basic question for the specific case of the stock market. This thesis develops new theoretical models about the reaction of stock prices to macroeconomic news using new mathematical tools and techniques and tests the implications of these and other models using new data sets on macroeconomic news. In the first chapter of my thesis, A Rational Model of Underreaction: The Effect of Macroeconomic News, I analyze the long-term effects of macroeconomic news on the return dynamics. I develop a dynamic general equilibrium asset pricing model where macroeconomic news is an additional state variable. In this framework, I show that the underreaction of stock prices to news is consistent with a rational expectations model rather than a behavioral specification as suggested by recent literature. Furthermore, I show that the reaction of the stock market to news depends on the state of the economy. The empirical results suggest that the stock market underreacts to news about the nominal U.S. Gross Domestic Product. In the second chapter of my thesis, Risk and Return Reaction of the Stock Market to Public Announcements about Fundamentals: Theory and Evidence, I analyze the short-term effects of public macroeconomic announcements about fundamentals on daily returns. This chapter presents new theoretical and empirical results on the effect of public announcements on the stock market. I develop a dynamic general equilibrium asset pricing model where investors learn about the unobserved state of the economy through dividend realizations and periodic public announcements. The main implications of my model can be summarized as follows: 1. If investors are more risk averse than log utility, returns react negatively to a positive unanticipated news in the announcement. 2. Returns react asymmetrically to the unanticipated news on announcement days. 3. The effect of the unanticipated news depends on the state of the economy which is revealed by the announcement. 4. On announcement days, the conditional volatility of returns is a decreasing function of the investors' uncertainty about the announcement. In other words, the higher the degree of uncertainty resolved on announcement days, the smaller the conditional volatility will be. Using real-time data and survey expectations, I develop measures of unanticipated news and uncertainty to test the implications of my theoretical model. I find that the implications of my model hold for the aggregate stock market returns on the U.S. Gross Domestic Product announcement days. In the last chapter of my thesis, I analyze the asymmetries in the reaction of returns on portfolios with different characteristics to the same macroeconomic news. The first empirical question addressed in this chapter is "Do the effects of macroeconomic news on stock returns differ across assets?". More specifically, I analyze whether stock returns on a portfolio of firms with high market capitalization and/or high book equity-to-market equity ratio react differently than stock returns on a portfolio of firms with low market capitalization and/or low book equity-to-market equity. I find that returns on a portfolio of firms with high market capitalization (large firms) and book-to-market ratio (value firms) react stronger (in magnitude) to macroeconomic news than returns on a portfolio of firms with low market capitalization (small firms) and book-to-market ratio (growth firms). I also find that firms with high market capitalization and low book-to-market ratio are sensitive to fewer macroeconomic variables than firms with low market capitalization and high book-to-market ratio. Having documented these asymmetries in the reaction of firms with different characteristics, I analyze the possible sources of these asymmetries by decomposing the effect of news into three parts, its effect through the market's discount rate component, its effect through the market's cash flow component and its direct effect. First of all, I find that the news does not have any direct effect on stock returns when one controls for the market's discount rate and cash flow components suggesting that the reaction is generally captured by the two market components. Furthermore, I find that the differential reaction across firms with different characteristics is generally due to the differential sensitivity to the market's cash flow component.
