Download This PaperAggregate Earnings Surprises, Monetary Policy, and Stock Returns
Journal of Accounting & Economics (JAE), Forthcoming
Singapore Management University School of Accountancy Research Paper No. 2016-50
50 Pages Posted: 25 Jul 2013 Last revised: 7 Dec 2016
Date Written: April 1, 2016
Abstract
This paper examines whether the negative association between aggregate earnings and returns is explained by the monetary policy news in aggregate earnings. Using Federal funds futures data to construct a measure of policy news, we find that aggregate earnings convey information about the Fed’s policy actions. Additionally, the negative aggregate earnings-returns association is muted when we control for policy surprises. This result is more pronounced in periods with negative policy surprises, which tend to trigger a more significant market reaction. Taken together, these results suggest that aggregate earnings convey policy news and the market reacts negatively to policy surprises, which drives the negative aggregate earnings-returns association.
Keywords: Aggregate Earnings; Monetary Policy; Stock Return; Federal Funds Futures
JEL Classification: E44, E52, M41
Suggested Citation: Suggested Citation
Lindsey A. Gallo
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
7347648243 (Phone)
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