Two Essays on the Effect of Macroeconomic News on the Stock Market PDF Download

Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Two Essays on the Effect of Macroeconomic News on the Stock Market PDF full book. Access full book title Two Essays on the Effect of Macroeconomic News on the Stock Market by Ajay Kongera. Download full books in PDF and EPUB format.

Two Essays on the Effect of Macroeconomic News on the Stock Market

Two Essays on the Effect of Macroeconomic News on the Stock Market PDF Author: Ajay Kongera
Publisher:
ISBN:
Category : Macroeconomics
Languages : en
Pages : 148

Book Description


Two Essays on the Effect of Macroeconomic News on the Stock Market

Two Essays on the Effect of Macroeconomic News on the Stock Market PDF Author: Ajay Kongera
Publisher:
ISBN:
Category : Macroeconomics
Languages : en
Pages : 148

Book Description


Stock Market Volatility and Price Discovery

Stock Market Volatility and Price Discovery PDF Author: Jose Gonzalo Rangel
Publisher:
ISBN:
Category :
Languages : en
Pages : 130

Book Description


Essays on the Stock Market's Reaction to Macroeconomic News

Essays on the Stock Market's Reaction to Macroeconomic News PDF Author: Tolga Cenesizoglu
Publisher:
ISBN:
Category : Journalism, Commercial
Languages : en
Pages : 392

Book Description
There are probably only few other questions as central to economics as the question "How do market prices react to news?". The reaction of prices to new information has interested and puzzled economists since the early years of the field. This thesis addresses several dimensions of this basic question for the specific case of the stock market. This thesis develops new theoretical models about the reaction of stock prices to macroeconomic news using new mathematical tools and techniques and tests the implications of these and other models using new data sets on macroeconomic news. In the first chapter of my thesis, A Rational Model of Underreaction: The Effect of Macroeconomic News, I analyze the long-term effects of macroeconomic news on the return dynamics. I develop a dynamic general equilibrium asset pricing model where macroeconomic news is an additional state variable. In this framework, I show that the underreaction of stock prices to news is consistent with a rational expectations model rather than a behavioral specification as suggested by recent literature. Furthermore, I show that the reaction of the stock market to news depends on the state of the economy. The empirical results suggest that the stock market underreacts to news about the nominal U.S. Gross Domestic Product. In the second chapter of my thesis, Risk and Return Reaction of the Stock Market to Public Announcements about Fundamentals: Theory and Evidence, I analyze the short-term effects of public macroeconomic announcements about fundamentals on daily returns. This chapter presents new theoretical and empirical results on the effect of public announcements on the stock market. I develop a dynamic general equilibrium asset pricing model where investors learn about the unobserved state of the economy through dividend realizations and periodic public announcements. The main implications of my model can be summarized as follows: 1. If investors are more risk averse than log utility, returns react negatively to a positive unanticipated news in the announcement. 2. Returns react asymmetrically to the unanticipated news on announcement days. 3. The effect of the unanticipated news depends on the state of the economy which is revealed by the announcement. 4. On announcement days, the conditional volatility of returns is a decreasing function of the investors' uncertainty about the announcement. In other words, the higher the degree of uncertainty resolved on announcement days, the smaller the conditional volatility will be. Using real-time data and survey expectations, I develop measures of unanticipated news and uncertainty to test the implications of my theoretical model. I find that the implications of my model hold for the aggregate stock market returns on the U.S. Gross Domestic Product announcement days. In the last chapter of my thesis, I analyze the asymmetries in the reaction of returns on portfolios with different characteristics to the same macroeconomic news. The first empirical question addressed in this chapter is "Do the effects of macroeconomic news on stock returns differ across assets?". More specifically, I analyze whether stock returns on a portfolio of firms with high market capitalization and/or high book equity-to-market equity ratio react differently than stock returns on a portfolio of firms with low market capitalization and/or low book equity-to-market equity. I find that returns on a portfolio of firms with high market capitalization (large firms) and book-to-market ratio (value firms) react stronger (in magnitude) to macroeconomic news than returns on a portfolio of firms with low market capitalization (small firms) and book-to-market ratio (growth firms). I also find that firms with high market capitalization and low book-to-market ratio are sensitive to fewer macroeconomic variables than firms with low market capitalization and high book-to-market ratio. Having documented these asymmetries in the reaction of firms with different characteristics, I analyze the possible sources of these asymmetries by decomposing the effect of news into three parts, its effect through the market's discount rate component, its effect through the market's cash flow component and its direct effect. First of all, I find that the news does not have any direct effect on stock returns when one controls for the market's discount rate and cash flow components suggesting that the reaction is generally captured by the two market components. Furthermore, I find that the differential reaction across firms with different characteristics is generally due to the differential sensitivity to the market's cash flow component.

Essays on Asset Prices and Macroeconomic News Announcements

Essays on Asset Prices and Macroeconomic News Announcements PDF Author: John Cong Zhou
Publisher:
ISBN:
Category :
Languages : en
Pages :

Book Description
My dissertation is composed of three chapters that are unified by their exploration of asset prices and macroeconomic news announcements. With respect to asset prices, my main focus is on the price discovery process: how do asset prices reveal information relevant for asset fundamentals? Through my research, I provide new answers to this question. My work gets at core issues in asset pricing: whether financial markets are informationally efficient; why some assets earn unconditionally high premia; and how the sensitivity of prices to information varies over time and across assets. Specifically, chapter one shows evidence that sophisticated traders with an informational advantage inefficiently impound their edge into the aggregate U.S. stock market and U.S. Treasury bonds. In chapter two, I explore a model in which investors are averse to ambiguity (Knightian uncertainty) to explain why the equity premium is concentrated around specific events. Finally, chapter three investigates how the Federal Reserve's zero lower bound affects the response of asset prices, in particular interest rates, to information. Each of the three chapters explores the price discovery process using the unique setting of U.S. macroeconomic news announcements, which are made by government agencies and private-sector organizations and cover macroeconomic data on inflation, output, and unemployment. Analyzing financial markets in this setting deepens our understanding of how asset prices reflect information about macroeconomic fundamentals. At the same time, the results have macroeconomic implications; for example, the assumptions of monetary policy models in theory and the effectiveness of unconventional monetary policy in practice.

Essays on Equity Option Behavior Surrounding Macroeconomic Announcements

Essays on Equity Option Behavior Surrounding Macroeconomic Announcements PDF Author: Garrett T. DeSimone
Publisher:
ISBN: 9780355466355
Category :
Languages : en
Pages : 108

Book Description
This dissertation presents two empirical studies on equity option behavior around scheduled macroeconomic announcements. In the rst essay, I analyze the predic- tive power of implied volatilities of S&P 500 options for underlying index returns on macroeconomic news days. I design a measure of uncertainty based on economist fore- cast dispersion. During high uncertainty announcements, the steepness of the implied volatility function strongly predicts negative next day returns on the S&P 500, im- plying that buying pressure on out-of-the-money puts precedes bad economic news. Firm-level implied volatilities for cyclical and high beta stocks also exhibit this be- havior, indicating that options traders can predict the impact of announcements on individual stock returns. My ndings are consistent with the notion that informed options traders can anticipate and capitalize on the upcoming macroeconomic news. ☐ In the second essay, delta-neutral straddles have high returns when realized volatility is higher than expected, or when price jumps occur. This makes a straddle an eective proxy for studying variance and jump risk. In my second essay, I analyze returns on S&P 500 delta-neutral straddles to obtain the size and sign of the vari- ance and jump risk premiums on macroeconomic announcement days. Announcement day returns comprise over 77% of the total negative annualized returns on straddles, implying a vastly larger premium for insuring against changes in volatility and jumps around systematically released market news. In particular, on days when the Consumer Price Index, Non-Farm Payrolls, Industrial Manufacturing, and Industrial Production are announced, average returns are strongly negative ranging from -1.3% to -2.5%. In comparison, non-announcement days have average straddle returns of -0.1%, indicating that insurance for volatility and jumps resulting from random economic news shocks can essentially be obtained for free. However, straddles earn highly positive returns during Federal Open Market Committee (FOMC) meetings. This pattern of high re- turns to straddles is consistent with investor anticipation of sharp decreases in realized volatility as result of government put protection. High average returns compensate investors on FOMC days for bearing risks associated with stabilizing interventions.

Essays in Empirical Macroeconomics

Essays in Empirical Macroeconomics PDF Author: Julian Felix Ludwig
Publisher:
ISBN:
Category :
Languages : en
Pages : 274

Book Description
This dissertation examines how expectations are formed and how they interact with economic activities. Beliefs about economic outcomes vary with timing and accuracy of information, which have important implications for macroeconomic dynamics. The importance of expectations has long been emphasized in rational expectations (RE) models (see e.g. Lucas 1972, 1976; Kydland and Prescott 1982), and diffusion of information has been modeled in many ways (see e.g. Beaudry and Portier 2004, 2006; Mankiw and Reis 2002; Woodford 2003; Sims 2003). My work builds on this literature and aims to improve the understanding of information structure, formation of beliefs, and decision-making, and how they contribute to macro business cycles. In the first chapter, I point out how identification of full information rational expectations (FIRE) models suffers from Manski's (1993) reflection problem. I extend the standard rational expectations (RE) model to allow for a more general information structure and introduce a new framework to identify the generalized model with forecaster data. Identification is no longer subject to the reflection problem when two changes are made to the information structure: the addition of news shocks and imperfect information. News shocks provide additional variation in expectations about the future. Imperfect information provides changes in beliefs about past states, through which the feedback between expectations and decisions goes only in one direction. Expectations data are consistent with both. An application to Greenbook forecasts illustrates the importance of both news shocks and learning about the past. When I apply this framework to a Blanchard and Quah (1989) decomposition, I reach qualitatively new results. For example, expansionary supply shocks decrease unemployment. Supply shocks are also particularly subject to both news and information rigidities, so relaxing the information structure is key to correctly identifying these shocks. In the second chapter, I discover how both good and bad news shocks coincide with higher uncertainty on impact. This new stylized fact is robust to different empirical models of the news shocks literature and different proxies for U.S. macro uncertainty. The new stylized fact has implications in three fields. First, bad news shocks produce the dynamics discovered in the uncertainty literature: spikes in uncertainty are followed by drops in output. I show that there is indeed some overlap between bad news and uncertainty shocks, as the effect of an uncertainty shock gets weaker when controlling for bad news shocks. Second, I show that the close relationship between news shocks and uncertainty seems to be also responsible for the close relationship between quarterly stock returns and stock market volatility - a proxy for uncertainty. This contributes to the finance literature that works on this relationship. Third, introducing a non-linear empirical model, I find additional asymmetries in the responses to news shocks due to the asymmetric response of uncertainty. This contributes directly to the news shocks literature. An important conclusion of chapters one and two is that economic shocks vary with availability of information. The third chapter deals with such heterogeneity. I relax the assumption that economic shocks of the same type are homogeneous, respectively, always have the same effect. Instead, I argue that economists identify a shock that consists of a variety of heterogeneous components. For example, a technology shock is the sum of all disaggregate technology shocks, from innovations in marketing up to inventions in the manufacturing process, which all have different effects on the economy. I discuss how standard identification methods can identify the shocks of interest despite this heterogeneity. I find that the weights on the shock components depend on the identification strategy so that different identification strategies produce different effects. This could explain why different macro papers often identify different responses to the same shock, in the same country, and over the same time period

Information Transmission and Investor Reactions

Information Transmission and Investor Reactions PDF Author: Jingjing Chen
Publisher:
ISBN:
Category : Information behavior
Languages : en
Pages : 121

Book Description
This dissertation consists of two essays that study the effects of information transmission on asset pricing under dynamic settings. My first essay studies the pricing of earnings announcement risk. Earnings announcements present a clear risk to investors and, under rational asset pricing theory, such risk should be consistently priced in stocks. However, I find that stocks with high earnings announcement risk earn significantly higher returns only during months when firms have earnings or M&A announcements. Moreover, the higher returns are realized mostly around the date of announcements. The findings seem to suggest that the risk premium is accrued concurrently when investors adjust stock valuation in response to significant information events. I provide additional evidence to substantiate the conjecture based on the effects of information updates and investor information consumption.My second essay investigates market excess returns around scheduled macroeconomic news announcements. Prior literature documents significantly positive market excess returns implied from CAPM (i.e., the coefficient of market beta) and significantly positive realized market excess returns on scheduled macroeconomic announcement days. In this study, I find that market excess return swings from negative on the day before, to positive on the day of, and negative again on the day after announcements. The average market excess returns, both implied and realized, over the three-day announcement window are insignificant. I show that market excess returns around macroeconomic announcements are primarily driven by a mood swing, i.e., changes of investor appetite toward risk. Specifically, investors become highly risk-averse prior to announcement but are much less so on the announcement day. I also show that uncertainty resolution at best partially accounts for the swing of market excess returns.

The Great Inflation

The Great Inflation PDF Author: Michael D. Bordo
Publisher: University of Chicago Press
ISBN: 0226066959
Category : Business & Economics
Languages : en
Pages : 545

Book Description
Controlling inflation is among the most important objectives of economic policy. By maintaining price stability, policy makers are able to reduce uncertainty, improve price-monitoring mechanisms, and facilitate more efficient planning and allocation of resources, thereby raising productivity. This volume focuses on understanding the causes of the Great Inflation of the 1970s and ’80s, which saw rising inflation in many nations, and which propelled interest rates across the developing world into the double digits. In the decades since, the immediate cause of the period’s rise in inflation has been the subject of considerable debate. Among the areas of contention are the role of monetary policy in driving inflation and the implications this had both for policy design and for evaluating the performance of those who set the policy. Here, contributors map monetary policy from the 1960s to the present, shedding light on the ways in which the lessons of the Great Inflation were absorbed and applied to today’s global and increasingly complex economic environment.

Two Essays in Financial and Monetary Economics

Two Essays in Financial and Monetary Economics PDF Author: Sherman J. Ho
Publisher:
ISBN:
Category : Demand for money
Languages : en
Pages : 296

Book Description


Dissertation Abstracts International

Dissertation Abstracts International PDF Author:
Publisher:
ISBN:
Category : Dissertations, Academic
Languages : en
Pages : 640

Book Description