Stock Market Returns and GDP News

Journal of Accounting, Auditing, and Finance

44 Pages Posted: 22 Aug 2014 Last revised: 8 Nov 2021

See all articles by Panos N. Patatoukas

Panos N. Patatoukas

University of California, Berkeley - Haas School of Business

Date Written: August 30, 2019

Abstract

What is the link between stock returns and news about economic growth? Using consensus forecasts from the Philadelphia Fed’s Survey of Professional Forecasters, I find that the univariate association between stock returns and GDP growth forecast surprises is indistinguishable from zero. While consistent with prior macro-finance research, this phenomenon is intriguing if one believes that the stock market should move in sync with the economy. I consider two non-mutually exclusive hypotheses for this puzzling phenomenon. The first hypothesis is that GDP growth forecast surprises are correlated with offsetting cash flow news and discount rate news. The second hypothesis is that GDP growth forecast surprises measure news about economic growth with noise. I extract a measure of market-level discount rate news using accounting data and find evidence consistent with the hypothesis of offsetting value-relevant news. Overall, the paper makes an important step towards resolving evidence of a disconnect between stock market returns and news about economic growth. More broadly, the paper illustrates how accounting constructs and methods can be applied to inform macro-finance questions.

Keywords: GDP Growth; Stock Market Returns; Macro Accounting

JEL Classification: E44; G10; M41

Suggested Citation

Patatoukas, Panos N., Stock Market Returns and GDP News (August 30, 2019). Journal of Accounting, Auditing, and Finance, Available at SSRN: https://ssrn.com/abstract=2484185 or http://dx.doi.org/10.2139/ssrn.2484185

Panos N. Patatoukas (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

HOME PAGE: http://https://sites.google.com/berkeley.edu/panos

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