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Investor sentiment and the market reaction to macroeconomic news

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  • Chen Gu
  • Denghui Chen
  • Raluca Stan

Abstract

We provide evidence that the stock market response to macroeconomic news weakens in times of high investor sentiment. The reaction to macroeconomic information is 50% weaker in times of elevated bullish investor sentiment, relative to periods of low sentiment. This dampening effect holds for both good and bad macroeconomic news. Investor sentiment seems to hinder the incorporation of public information into asset prices. Our findings shed new light on how investor sentiment affects the link between fundamentals and security prices.

Suggested Citation

  • Chen Gu & Denghui Chen & Raluca Stan, 2021. "Investor sentiment and the market reaction to macroeconomic news," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(9), pages 1412-1426, September.
    • Handle: RePEc:wly:jfutmk:v:41:y:2021:i:9:p:1412-1426
    DOI: 10.1002/fut.22219
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    Cited by:

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    2. Xu Gong & Keqin Guan & Qiyang Chen, 2022. "The role of textual analysis in oil futures price forecasting based on machine learning approach," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(10), pages 1987-2017, October.

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