The Price of Macroeconomic Announcement News

30 Pages Posted: 25 Mar 2010 Last revised: 29 Nov 2013

See all articles by Peter de Goeij

Peter de Goeij

Tilburg University

Jiehui Hu

Independent

Bas J. M. Werker

Tilburg University - Center for Economic Research (CentER)

Date Written: December 2, 2010

Abstract

We show that news on the state of the economy released via scheduled macroeconomic announcements changes the risk-return relation for stocks. Consistent with the predictions from theory, macroeconomic announcement news commands an asymmetric premium, which depends on the state of the economy. First, macroeconomic news constitutes priced risk which is not captured by the market, size, value or momentum factors. For example, exposure to news on higher output is rewarded with a annualized price of risk of 2.832% during expansions and an annualized price of risk of -7.008% during contractions. Simultaneously, the occurrence of macroeconomic news events changes the rewards investors require for holding the market, size, value and momentum factors. Our results explain that average returns are different on macroeconomic announcement days and show that, when news on the state of the economy is released, stock returns are driven by fundamental risks.

Keywords: E44, G12, G14

JEL Classification: Economic risk premia, macroeconomic announcements, factor pricing

Suggested Citation

de Goeij, Peter and Hu, Jiehui and Werker, Bas J.M., The Price of Macroeconomic Announcement News (December 2, 2010). Netspar Discussion Paper No. 02/2009-053, Available at SSRN: https://ssrn.com/abstract=1573642 or http://dx.doi.org/10.2139/ssrn.1573642

Peter De Goeij

Tilburg University ( email )

P.O. Box 90153
Room I607
Tilburg, Noord-Brabant 5000 LE
Netherlands
+31134662083 (Phone)

Jiehui Hu

Independent ( email )

Bas J.M. Werker (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

Econometrics and Finance Group
5000 LE Tilburg
Netherlands

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