Macroeconomic news announcements and stock returns. Positive vs. negative surprises

Abstract

The aim of this paper is to study the impact of macroeconomic announcements on asset prices, with the objective of measuring the response of stock returns to the unexpected component of the actual release. Stock returns are analyzed on the U.S stock market using the S&P 500 Index. We show that, surprises of the US Employees on Nonfarm Payrolls Total MoM Net Change (NFP_TCH ) macroeconomic variable affect negatively the returns of the Index. Specifically, an increase of one standard deviation in the US Employees on Nonfarm Payrolls Total MoM Net Change (NFP_TCH) will decrease the index performance by 0.115 points. Finally, in this paper we showed that due to irrationality we can create a forecasting equation and for that reason we examined the market efficiency by looking if the market assimilates effectively all the available information immediately or in future periods. Our findings show that the current surprises of the ISM Manufacturing PMI (NAPMPMI) macroeconomic variable negatively affect S&P’s returns 4 months later. Respectively, the current surprises of the US Initial Jobless Claims (INJCJC) macroeconomic variable affect negatively S&P’s returns 2 weeks later and the current surprises of the US Gross Domestic Product (GDP_CQOQ) macroeconomic variable affect positively the S&P’s returns 2 quarters later.