Economic News and International Stock Market Co-Movement

Review of Finance Vol. 13, 2009

EFA 2006 Zurich Meetings

66 Pages Posted: 3 Jun 2008 Last revised: 29 Dec 2014

Clara Vega

Board of Governors of the Federal Reserve System

Rui A. Albuquerque

Boston College, Carroll School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: January 19, 2012

Abstract

We analyze the effects that real-time domestic and foreign news about fundamentals have on the co-movement between stock returns of a small, open economy, Portugal, and a large economy, the United States. Studying co-movement between the US and a small, open economy helps overcome significant potential issues in the literature: (i) we avoid endogeneity biases; (ii) we increase the statistical power to reject the null hypothesis in favor of the alternative that US macroeconomic news are drivers of co-movement; and (iii) our results are less likely to suffer from omitted variable biases. Consistent with our theoretical model, we find that US macroeconomic news and Portuguese earnings news do not affect cross-country stock market co-movement, whereas Portuguese macroeconomic news lowers cross-country stock market co-movement. We also find that US public information affects Portuguese stock market returns; however, this effect is much reduced when US stock market returns are included in the regression. We provide evidence, contrary to common wisdom, that this result does not derive from contagion. Finally, public information is associated with increased liquidity in the United States, while the effect in Portugal depends on the type of news released.

Keywords: Private information, public news announcements, information spillovers, international equity returns, contagion

JEL Classification: F3, G12, G14, G15

Suggested Citation

Vega, Clara and Albuquerque, Rui A., Economic News and International Stock Market Co-Movement (January 19, 2012). Review of Finance Vol. 13, 2009; EFA 2006 Zurich Meetings. Available at SSRN: https://ssrn.com/abstract=1139927

Clara Vega

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.federalreserve.gov/research/staff/vegaclarax.htm

Rui A. Albuquerque (Contact Author)

Boston College, Carroll School of Management ( email )

140 Commonwealth Avenue
Chustnut Hill, MA 02467-3808
United States

HOME PAGE: http://ruialbuquerque.webs.com

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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