Market Impact of Macroeconomic Announcements: Do Surprises Matter?
Kensho Technologies; Harvard University
Anatoly B. Schmidt
Kensho Technologies; Financial Engineering Program, Stevens Institute of Technology; Financial Risk and Engineering, NYU School of Engineering
July 29, 2015
Current research of market impact caused by macroeconomic announcements is based on regressing asset returns on macroeconomic surprises, S(t) ~ A(t) – E(t), where A(t) and E(t) are actual and expected (consensus) values of macroeconomic indicators at time t, correspondingly. We found that regressing returns of SPDR ETF SPY on actual change, AC(t) ~ A(t) – A(t-1), and expected change, EC(t) ~ E(t) – A(t-1), yield statistically significant indicators similar to those for S(t). These indicators somewhat vary for the periods 2004-2008 and 2009-2013. The advantage of AC(t) is that it is not based on the subjective nature of consensus. As for EC(t), it does not have a look-ahead bias since E(t) are published a few days prior to A(t). Hence CE(t) can be used for short-term forecasting. We show that with proper fitting, AC-, EC-, and S-based indexes can be used for qualitative modeling the SPY price dynamics. However, the effects of macroeconomic announcements alone do not describe the strength of the bull market in 2009-2014.
Number of Pages in PDF File: 23
Keywords: market impact; macroeconomic announcements; ARMA GARCH model
Date posted: June 14, 2014 ; Last revised: July 30, 2015