Stock prices and economic news (original) (raw)
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Stock Market Reactions to Monetary Policy Surprises Under Uncertainty
International Review of Financial Analysis, 2023
This article investigates how uncertainty impacts the effect of monetary policy surprises on stock returns. Using high-frequency US data, we demonstrate that stock markets respond more aggressively to monetary policy surprises during periods of high uncertainty. We also show that uncertainty asymmetrically influences the transmission of positive and negative monetary policy surprises to stock market prices. The amplifying effect of uncertainty is found to be stronger for expansionary shocks than for contractionary shocks. Our robustness analysis confirms that financial uncertainty has a significant role in shaping the influence of monetary policy on the stock market.
International Journal of Economics and Financial Issues, 2018
This study aims to measure the inflation news impact on common sector stock returns. Using consumer price index (CPI) and producer price index (PPI) announcements and daily returns of Standard & Poor's 500 index, an Event Study Methodology analysis of a sample period from January 1990 to April 2013 is conducted. Taking into account the direction of the inflation news and the state of the economy, sector returns seem to react strong to CPI announcements and do not react to PPI announcements. In addition, the majority of the significant responses occur 2 days after that the inflation announcement takes place, so investors may react later to the arrival of new information. Finally, inflation announcements appear to have an impact when the state of the economy is low and when the direction of news is negative. Therefore, the state of the economy and direction of surprises are central variables to analyses of inflation news effects on abnormal returns.
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This paper aims to study the impact of macroeconomic announcements on stock returns. More specifically, it intends to measure the average response of the French stock market and to provide some theoretical explanations regarding the sources of this reaction. Using intraday data, the study shows that, according to previous studies, there is a little evidence of market reactions to those surprises. This result may be explained partly by the simultaneous revision of future cash flows and future interest rates, which renders the net effect on equities insignificantly different from zero.
What Determines the Stock Market's Reaction to Monetary Policy Statements?
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Abstract We find that information communicated through monetary policy statements has important business cycle dependent implications for stock prices. For example, during periods of economic expansion, stocks tend to respond negatively to announcements of higher rates ahead. In recessions, however, we find a strong positive reaction of stocks to seemingly similar signals of future monetary tightening.
The Greenspan effect on equity markets: an intraday examination of US monetary policy announcements
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Abstract: In this paper, we provide an intraday analysis of the impact of monetary policy on the equity markets. Specifically, we study changes in prices and changes in volatility for the S&P 500 associated with Federal Open Market Committee announcements as well as real-time changes in market expectations about future policy. The analysis shows an economically and statistically significant inverse relationship between equity market returns and changes in the Fed funds rate target.
Monetary Policy Announcements and Stock Returns: Evidence from the Pakistani Market
Transition Studies Review, 2011
Objective of this paper is to analyze the impact of monetary policy announcements on stock returns. Event window of 31 days and an estimation window of 250 days was constructed. ARIMA model is applied to calculate the estimated returns from estimation window (t -250). Abnormal returns were calculated by taking the difference between actual and estimated returns. Then abnormal returns were aggregated as cumulative abnormal returns (CAR). CAR at 30% showed an impact of monetary policy announcements on stock returns. Null hypothesis of zero abnormal returns was rejected since the results were found in critical region under normal distribution. Further, we decomposed the interest rate into expected and un-expected to analyze their impact on stock returns. After checking for stationarity, Engle-Granger co-integration test were applied to check long run relationship between interest rates and stock return. A significant effect of interest rates (expected and un-expected) was observed in the short run. These results are in line with Kuttner's (J Monet Econ 47:523-544, 2001), Bernanke and Kuttner's (J Financ 60:1221-1257, 2005), Bredin et al.'s (US stock returns the impact of domestic monetary policy shocks, http:/ /www.ucd.ie/t4cms/wp0604.pdf, 2007) and Ehrmann and Fratzscher's (Equal size, equal role? Interest rate interdependence between the Euro Area and the United States, European Central Bank Working Paper 342, 2004). The study finds evidence of LR relationship between unexpected interest rates and whereas expected interest rates and stock returns have short term relationship.
2004
Introduction 2 The impact of news on financial assets and its relation to transparency Error! Bookmark not defined. 3 Literature review 4 Data description 4.1 Intraday prices, number of trades and trading volume 4.2 Announcements and surprises 5 How to measure announcement effects 6 The effect of macroeconomic announcements on yields: the macro hypothesis 6.1 The effect of UK macro announcements on Short Sterling and Long Gilt 6.2 The Effect of Bank independence 6.3 International macro indicators 6.4 Controlling for uncertainty 7 Testing the macro hypothesis for the United States 8 The effect of macro announcements on volatility and trades-the micro hypothesis 8.1 The effects on volatility 8.2 The effect on trades 9 Conclusion Appendices
Does the Stock Market Under-React to the Federal Reserve Bank's Monetary Policy Actions?
SSRN Electronic Journal, 2000
This paper analyzes the reaction of the stock market to the monetary policy actions of the Federal Reserve (the Fed). Specifically, we examine the reaction of the stock market to the monetary policy announcements by the Federal Open Market Committee (FOMC) of the Fed. We show that the full information conveyed by the Fed is not immediately incorporated in asset prices and that there is a statistically significant abnormal return to a broad market index on the day after the announcement by the FOMC of its monetary policy actions. We use data from the federal funds futures market to measure the expected and unexpected changes in the federal funds rate. We demonstrate that the market reacts to the unexpected changes in monetary policy of the FOMC. We detect positive and statistically significant abnormal market returns on the day after the FOMC makes its monetary policy announcements. We reject the hypothesis that these returns are unpredictable by finding predictable returns the day following the day of the FOMC announcement of its monetary policy actions.