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Macroeconomic News and Stock Returns in the United States and Germany

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Author Info

  • Norbert Funke
  • Akimi Matsuda

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/239.

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Length: 30
Date of creation: 01 Dec 2002
Date of revision:
Handle: RePEc:imf:imfwpa:02/239

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Related research

Keywords: Stock markets; news; stock prices; stock market; stock returns; stock price; stock price index; stock market developments; press; bond; money market; financial markets; stock market indices; stock market movements; financial institutions; discount rate; risk-free interest rate;

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References

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  1. Douglas K. Pearce & V. Vance Roley, 1985. "Stock Prices and Economic News," NBER Working Papers 1296, National Bureau of Economic Research, Inc.
  2. Hardouvelis, Gikas A., 1987. "Macroeconomic information and stock prices," Journal of Economics and Business, Elsevier, vol. 39(2), pages 131-140, May.
  3. David H. Cutler & James M. Poterba & Lawrence H. Summers, 1988. "What Moves Stock Prices?," Working papers 487, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. 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.
  5. Alan B. Krueger & Kenneth N. Forston, 2003. "Do Markets Respond More to More Reliable Labor Market Data? A Test of Market Rationality," Working Papers 114, Princeton University, Department of Economics, Center for Economic Policy Studies..
  6. John H. Boyd & Ravi Jagannathan & Jian Hu, 2001. "The Stock Market's Reaction to Unemployment News: Why Bad News is Usually Good for Stocks," NBER Working Papers 8092, National Bureau of Economic Research, Inc.
  7. Zuliu Hu & Li Li, 1998. "Responses of the Stock Market to Macroeconomic Announcements Across Economic States," IMF Working Papers 98/79, International Monetary Fund.
  8. Michael J. Fleming & Eli M. Remolona, 1999. "The term structure of announcement effects," Staff Reports 76, Federal Reserve Bank of New York.
  9. Michael J. Fleming & Eli M. Remolona, 1999. "Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information," Journal of Finance, American Finance Association, vol. 54(5), pages 1901-1915, October.
  10. Chen, Cathy W. S. & Chiang, Thomas C. & So, Mike K. P., 2003. "Asymmetrical reaction to US stock-return news: evidence from major stock markets based on a double-threshold model," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 487-502.
  11. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
  12. Rapach, David E., 2001. "Macro shocks and real stock prices," Journal of Economics and Business, Elsevier, vol. 53(1), pages 5-26.
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Citations

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Cited by:
  1. Alexandra Niessen, 2007. "Media Coverage and Macroeconomic Information Processing," SFB 649 Discussion Papers SFB649DP2007-011, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Argentesi, Elena & Lütkepohl, Helmut & Motta, Massimo, 2006. "Acquisition of Information and Share Prices: An Empirical Investigation of Cognitive Dissonance," CEPR Discussion Papers 5912, C.E.P.R. Discussion Papers.
  3. Werner, Thomas & Stapf, Jelena, 2003. "How wacky is the DAX? The changing structure of German stock market volatility," Discussion Paper Series 1: Economic Studies 2003,18, Deutsche Bundesbank, Research Centre.
  4. Díaz, Antonio & Jareño, Francisco, 2009. "Explanatory factors of the inflation news impact on stock returns by sector: The Spanish case," Research in International Business and Finance, Elsevier, vol. 23(3), pages 349-368, September.
  5. Wan, Yang & Clutter, Michael L. & Siry, Jacek P. & Mei, Bin, 2013. "Assessing the impact of macroeconomic news on the U.S. forest products industry portfolio across business cycles: 1963–2010," Forest Policy and Economics, Elsevier, vol. 28(C), pages 15-22.
  6. M. Kabir Hassan & William J. Hippler III, 2013. "The Pronounced Impact of Macroeconomic Stress on the Financial Sector: Implications for Real Sector Growth," NFI Working Papers 2013-WP-01, Indiana State University, Scott College of Business, Networks Financial Institute.
  7. Imane El Ouadghiri & Valerie Mignon & Nicolas Boitout, 2014. "On the impact of macroeconomic news surprises on Treasury-bond yields," EconomiX Working Papers 2014-20, University of Paris West - Nanterre la Défense, EconomiX.
  8. Filbien, Jean-Yves & Labondance, Fabien, 2013. "Do financial markets learn from ECB monetary policy?," Economics Letters, Elsevier, vol. 120(2), pages 271-275.

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