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The Effects of Inflation News on High Frequency Stock Returns

Author

Listed:
  • Greg Adams

    (Brigham Young University)

  • Grant McQueen

    (Brigham Young University)

  • Robert Wood

    (University of Memphis)

Abstract

Previous research using daily returns finds conflicting evidence about the relationship between unanticipated inflation (news) and stock returns. We explore the relationship by looking at the response (in minutes and trades) of size-based stock portfolios to unexpected changes in the regularly scheduled Producer Price Index and Consumer Price Index announcements. In particular, we answer the following three questions: (1) Do stocks respond to inflation news? (2) What is the speed and path of that response? (3) Is the response stable or does it vary with the economy, the direction of the news, or time?

Suggested Citation

  • Greg Adams & Grant McQueen & Robert Wood, 2004. "The Effects of Inflation News on High Frequency Stock Returns," The Journal of Business, University of Chicago Press, vol. 77(3), pages 547-574, July.
  • Handle: RePEc:ucp:jnlbus:v:77:y:2004:i:3:p:547-574
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    Citations

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    Cited by:

    1. Alenka Kavkler & Mejra Festić, 2011. "Modelling Stock Exchange Index Returns in Different GDP Growth Regimes," Prague Economic Papers, University of Economics, Prague, vol. 2011(1), pages 3-22.
    2. Francisco Jareno, 2008. "Spanish stock market sensitivity to real interest and inflation rates: an extension of the Stone two-factor model with factors of the Fama and French three-factor model," Applied Economics, Taylor & Francis Journals, vol. 40(24), pages 3159-3171.
    3. Pearce, Douglas K. & Solakoglu, M. Nihat, 2007. "Macroeconomic news and exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(4), pages 307-325, October.
    4. Rangel, José Gonzalo, 2011. "Macroeconomic news, announcements, and stock market jump intensity dynamics," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1263-1276, May.
    5. Nowak, Sylwia & Anderson, Heather M., 2014. "How does public information affect the frequency of trading in airline stocks?," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 26-38.
    6. John Elder, Hong Miao, and Sanjay Ramchander, 2013. "Jumps in Oil Prices: The Role of Economic News," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    7. Hui Hong & Fergal O'Brien & James Ryan, 2014. "Inflation And The Subsequent Timing Of The Chinese Stock Market," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 10(2), pages 13-35.
    8. Elder, John & Miao, Hong & Ramchander, Sanjay, 2012. "Impact of macroeconomic news on metal futures," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 51-65.
    9. Dieter Hess & He Huang & Alexandra Niessen, 2008. "How do commodity futures respond to macroeconomic news?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 22(2), pages 127-146, June.
    10. Erenburg, Grigori & Kurov, Alexander & Lasser, Dennis J., 2006. "Trading around macroeconomic announcements: Are all traders created equal?," Journal of Financial Intermediation, Elsevier, vol. 15(4), pages 470-493, October.
    11. Li, Lifang & Narayan, Paresh Kumar & Zheng, Xinwei, 2010. "An analysis of inflation and stock returns for the UK," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(5), pages 519-532, December.
    12. Kuruppuarachchi, Duminda & Premachandra, I.M., 2016. "Information spillover dynamics of the energy futures market sector: A novel common factor approach," Energy Economics, Elsevier, vol. 57(C), pages 277-294.
    13. Gilbert, Thomas, 2011. "Information aggregation around macroeconomic announcements: Revisions matter," Journal of Financial Economics, Elsevier, vol. 101(1), pages 114-131, July.
    14. Laivi Laidroo & Zana Grigaliuniene, 2012. "Testing for asymmetries in price reactions to quarterly earnings announcements on Tallinn, Riga and Vilnius Stock Exchanges during 2000-2009," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 12(1), pages 61-86, July.
    15. Sylwia Nowak, 2008. "How Do Public Announcements Affect The Frequency Of Trading In U.S. Airline Stocks?," CAMA Working Papers 2008-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    16. Scholtus, Martin & van Dijk, Dick & Frijns, Bart, 2014. "Speed, algorithmic trading, and market quality around macroeconomic news announcements," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 89-105.
    17. Dimitrios I. Vortelinos, 2015. "The Effect of Macro News on Volatility and Jumps," Annals of Economics and Finance, Society for AEF, vol. 16(2), pages 425-447, November.
    18. Lapp, John S. & Pearce, Douglas K., 2012. "The impact of economic news on expected changes in monetary policy," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 362-379.
    19. Subhani, Muhammad Imtiaz & Osman, Amber & Gul, Ameet, 2010. "Relationship between consumer price index (CPI) and KSE-100 index trading volume in pakistan and finding the endogeneity in the involved data," MPRA Paper 26375, University Library of Munich, Germany, revised 02 Nov 2010.
    20. Khan, Muhammad Irfan Khan & Meher, Muhammad Ayub Khan Mehar & Syed, Syed Muhammad Kashif, 2013. "Impact of Inflation on Dividend Policy: Synchronization of Capital Gain and Interest Rate," MPRA Paper 51593, University Library of Munich, Germany, revised 04 Nov 2013.
    21. Bank, Matthias & Baumann, Ralf H., 2016. "Price formation, market quality and the effects of reduced latency in the very short run," Research in International Business and Finance, Elsevier, vol. 37(C), pages 629-645.
    22. Dimpfl, Thomas, 2011. "The impact of US news on the German stock market—An event study analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(4), pages 389-398.
    23. 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.

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