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The Relevance of the Market and News Direction When Analyzing the Inflation News Impact on the US Stock Market

Author

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  • Francisco Jare o

    (Department of Economics and Finance, University of Castilla-La Mancha, Faculty of Economic and Business Sciences, Plaza dela Universidad, 1, 02071, Albacete, Spain,)

  • Marta Tolentino

    (Department of Economics and Finance, University of Castilla-La Mancha, School of Law and Social Sciences, Ronda de Toledo, s/n, 13071, Ciudad Real, Spain,)

  • M del Camino Torrecillas

    (Department of Economics and Finance, University of Castilla-La Mancha, Faculty of Economic and Business Sciences, Plaza de la Universidad, 1, 02071, Albacete, Spain.)

Abstract

This study aims to measure the inflation news impact on common sector stock returns. Using CPI and PPI announcements and daily returns of S&P500 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 two 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.

Suggested Citation

  • Francisco Jare o & Marta Tolentino & M del Camino Torrecillas, 2018. "The Relevance of the Market and News Direction When Analyzing the Inflation News Impact on the US Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 113-127.
    • Handle: RePEc:eco:journ1:2018-02-16
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    References listed on IDEAS

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    1. Birz, Gene & Lott Jr., John R., 2011. "The effect of macroeconomic news on stock returns: New evidence from newspaper coverage," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2791-2800, November.
    2. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March.
    3. Ali Anari & James Kolari, 2001. "Stock Prices And Inflation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(4), pages 587-602, December.
    4. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, vol. 73(2), pages 251-277, November.
    5. Boudoukh, Jacob & Richardson, Matthew, 1993. "Stock Returns and Inflation: A Long-Horizon Perspective," American Economic Review, American Economic Association, vol. 83(5), pages 1346-1355, December.
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    Cited by:

    1. Francisco JAREÑO & Marta TOLENTINO & María de la O GONZÁLEZ, 2018. "The Us Stock Market At Sector Level: Inflation News, 1990-2013," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 18(1), pages 73-86.

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    More about this item

    Keywords

    Inflation Announcement; Flow-through Ability; Stock Return; Market Efficiency;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G3 - Financial Economics - - Corporate Finance and Governance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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