When Does the Stock Market Listen to Economic News? New Evidence from Copulas and News Wires

42 Pages Posted: 16 Mar 2015 Last revised: 15 May 2015

Date Written: May 4, 2015

Abstract

We study association between macroeconomic news and stock market returns using the statistical theory of copulas, and a new comprehensive measure of news based on the indexing of news wires. We find the impact of economic news on equity returns to be nonlinear and asymmetric. In particular, controlling for economic conditions and surprises associated with releases of economic data, we find that the market reacts strongly and negatively to the most unfavourable macroeconomic news, but appears to largely discount the good news. Further, the most-unfavorable news creates price drift, and we document that selling stocks short in the wake of unusually-bad news yields annual abnormal gross returns greater than four percent.

Keywords: copulas, macroeconomic news index, market efficiency, nonlinear dependence, tail dependence

JEL Classification: G14, C58, C51

Suggested Citation

Medovikov, Ivan, When Does the Stock Market Listen to Economic News? New Evidence from Copulas and News Wires (May 4, 2015). Available at SSRN: https://ssrn.com/abstract=2578355 or http://dx.doi.org/10.2139/ssrn.2578355

Ivan Medovikov (Contact Author)

Brock University ( email )

500 Glenridge Avenue
St. Catherines, Ontario L2S 3A1
Canada
9056885550 ext. 6148 (Phone)

HOME PAGE: http://www.brocku.ca/social-sciences/departments-and-centres/economics/faculty/ivan-medovikov

Register to save articles to
your library

Register

Paper statistics

Downloads
100
Abstract Views
605
rank
266,952
PlumX Metrics