What Triggers Stock Market Jumps?

76 Pages Posted: 9 Apr 2021

See all articles by Scott R. Baker

Scott R. Baker

Northwestern University

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER); Hoover Institution

Marco Sammon

Harvard Business School

Date Written: April 7, 2021

Abstract

We examine next-day newspaper accounts of large daily jumps in 16 national stock markets to assess their proximate cause, clarity as to cause, and the geographic source of the market-moving news. Our sample of 6,200 market jumps yields several findings. First, policy news – mainly associated with monetary policy and government spending – triggers a greater share of upward than downward jumps in all countries. Second, the policy share of upward jumps is inversely related to stock market performance in the preceding three months. This pattern strengthens in the postwar period. Third, market volatility is much lower after jumps triggered by monetary policy news than after other jumps, unconditionally and conditional on past volatility and other controls. Fourth, greater clarity as to jump reason also foreshadows lower volatility. Clarity in this sense has trended upwards over the past century. Finally, and excluding U.S. jumps, leading newspapers attribute one-third of jumps in their own national stock markets to developments that originate in or relate to the United States. The U.S. role in this regard dwarfs that of Europe and China.

Keywords: stock market jumps, policy news, market clarity, market volatility, uncertainty, newspapers, human classification

JEL Classification: G12, G17, E58, E62

Suggested Citation

R. Baker, Scott and Bloom, Nicholas and Davis, Steven J. and Sammon, Marco, What Triggers Stock Market Jumps? (April 7, 2021). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2021-42, Available at SSRN: https://ssrn.com/abstract=3821973 or http://dx.doi.org/10.2139/ssrn.3821973

Scott R. Baker

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Nicholas Bloom

Stanford University - Department of Economics ( email )

Landau Economics Building, Room 231
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Stanford, CA 94305-6072
United States
650-725-7836 (Phone)

HOME PAGE: http://economics.stanford.edu/faculty/bloom

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Steven J. Davis (Contact Author)

University of Chicago ( email )

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Chicago, IL 60637
United States
773-702-7312 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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Hoover Institution

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Stanford University
Stanford, CA 94305-6010
United States
773 251 1795 (Phone)

Marco Sammon

Harvard Business School ( email )

Boston, MA 02163
United States

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