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Do Markets Respond More to More Reliable Labor Market Data? A Test of Market Rationality

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  • Alan B. Krueger

    (Princeton University and NBER)

  • Kenneth N. Fortson

    (Princeton University)

Abstract

Since 1979, the Bureau of Labor Statistics (BLS) has nearly quadrupled the size of the sample used to estimate monthly employment changes. Although first-reported employment estimates are still noisy, the magnitude of sampling variability has declined in proportion to the increase in the sample size. A model of rational Bayesian updating predicts that investors would assign more weight to the BLS employment survey as it became more precise. However, a regression analysis of changes in interest rates on the day the employment data are released finds no evidence that the bond market's reaction to employment news intensified in the late 1980s or 1990s; indeed, in the late 1990s and early 2000s the bond markets hardly reacted to unexpected employment news. For the time period as a whole, an unexpected increase of 200,000 jobs is associated with about a 6 basis point increase in the interest rate on 30-year Treasury bonds, and an 8 basis point increase in the interest rate on three-month bills, all else equal. Additionally, unexpected changes in the unemployment rate and revisions to past months' employment estimates have statistically insig-nificant effects on long-term interest rates. (JEL: G14, J23) Copyright (c) 2003 The European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 1 (2003)
Issue (Month): 4 (06)
Pages: 931-957

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Handle: RePEc:tpr:jeurec:v:1:y:2003:i:4:p:931-957

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  1. McQueen, Grant & Roley, V Vance, 1993. "Stock Prices, News, and Business Conditions," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 683-707.
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  9. Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1190-1219, December.
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Cited by:
  1. Michael J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 31-50.
  2. Engle, Robert F, 1998. "Macroeconomic Announcements and Volatility of Treasury Futures," University of California at San Diego, Economics Working Paper Series qt7rd4g3bk, Department of Economics, UC San Diego.
  3. John H. Boyd & Jian Hu & Ravi Jagannathan, 2005. "The Stock Market's Reaction to Unemployment News: Why Bad News Is Usually Good for Stocks," Journal of Finance, American Finance Association, vol. 60(2), pages 649-672, 04.
  4. Moura, Marcelo L. & Gaião, Rafael L., 2014. "Impact of macroeconomic surprises on the Brazilian yield curve and expected inflation," The North American Journal of Economics and Finance, Elsevier, vol. 27(C), pages 114-144.
  5. Nikolaus Hautsch & Dieter Hess & Christoph Müller, 2008. "Price Adjustment to News with Uncertain Precision," FRU Working Papers 2008/01, University of Copenhagen. Department of Economics. Finance Research Unit.
  6. Hess, Dieter E., 2003. "Determinants of the relative price impact of unanticipated information in US macroeconomic releases," Frankfurt School - Working Paper Series 46, Frankfurt School of Finance and Management.
  7. Norbert Funke & Akimi Matsuda, 2002. "Macroeconomic News and Stock Returns in the United States and Germany," IMF Working Papers 02/239, International Monetary Fund.
  8. Douch, Mohamed & Bouaddi, Mohammed, 2010. "EQUITY Premium Puzzle in a Data-Rich Environment," MPRA Paper 29440, University Library of Munich, Germany.
  9. Laakkonen, Helinä & Lanne, Markku, 2009. "The Relevance of Accuracy for the Impact of Macroeconomic News on Volatility," MPRA Paper 23718, University Library of Munich, Germany.
  10. Chen, Qi & Francis, Jennifer & Jiang, Wei, 2005. "Investor learning about analyst predictive ability," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 3-24, February.
  11. Gilbert, Thomas, 2011. "Information aggregation around macroeconomic announcements: Revisions matter," Journal of Financial Economics, Elsevier, vol. 101(1), pages 114-131, July.
  12. Ramchander, Sanjay & Simpson, Marc W. & Chaudhry, Mukesh K., 2005. "The influence of macroeconomic news on term and quality spreads," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(1), pages 84-102, February.

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