A Robust Bayesian Analysis of the Stock Market's Response to Macroeconomic News

46 Pages Posted: 5 Oct 2013

See all articles by Ariel M. Viale

Ariel M. Viale

Florida Atlantic University

Antoine Giannetti

Florida Atlantic University

Date Written: October 4, 2013

Abstract

This paper explores the quality of the information that macroeconomic news convey to the stock market as forward looking signals of future business conditions. We introduce a novel robust Bayesian semi-parametric analysis of investors’ correspondence functions (i.e., signal-to-price mappings) in the stock market and a feasible ex ante measure of the level of ambiguity in Survey responses anticipating macroeconomic announcements. Using both survey and vector autoregressive (VAR)-based data we show that macroeconomic announcements are relatively ambiguous signals of future economic fundamentals in the stock market, potentially explaining some of previous controversial results in the literature.

Keywords: Learning under ambiguity, Macroeconomic news, Non-parametric methods, MMS survey data

Suggested Citation

Viale, Ariel M. and Giannetti, Antoine, A Robust Bayesian Analysis of the Stock Market's Response to Macroeconomic News (October 4, 2013). Available at SSRN: https://ssrn.com/abstract=2336018 or http://dx.doi.org/10.2139/ssrn.2336018

Ariel M. Viale (Contact Author)

Florida Atlantic University ( email )

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Boca Raton, FL 33431
United States
561-2972914 (Phone)
561-2972189 (Fax)

Antoine Giannetti

Florida Atlantic University ( email )

777 Glades Road
Boca Raton, FL 33431
United States
561-297-3192 (Phone)
561-297-2956 (Fax)

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