What Moves the Market? Individual Firms’ Earnings Announcements Versus Macro Releases As Drivers of Index Returns

53 Pages Posted: 7 May 2021 Last revised: 13 May 2021

See all articles by Maria Ogneva

Maria Ogneva

University of Southern California - Marshall School of Business

Jingjing Xia

City University of Hong Kong (CityU) - Department of Accountancy

Date Written: April 30, 2021

Abstract

In this paper, we characterize the relative importance of two sources of fundamental market-wide news—large firms’ earnings announcements and macroeconomic releases. Our investigation is motivated by growing concerns in the financial community about the increasing impact of individual firms’ news on the broad stock market indices and the disconnect between the stock market and the economy at large. We leverage the S&P500 index futures data and use narrow intraday and overnight windows to isolate the market-wide reactions to earnings and macro announcements. We find that earnings announcements represent an economically significant source of index-level market activity—an average earnings announcement experiences around 21% (47%) of abnormal volatility (trading volume) associated with an average macroeconomic release. The returns earned over earnings announcement windows serve as a significant driver of daily index price movement. Importantly, earnings announcements’ contribution to index-level volatility has been relatively stable over our sample period from 2004 to 2018, while we observe a drastic decrease in the volatility explained by macro announcements. The latter is consistent with a growing disconnect between the stock market and the broader macroeconomy.

Keywords: Earnings announcement, macroeconomic announcement, S&P 500 index returns, futures market, intraday price discovery

JEL Classification: G10, G12, G13, G14, M41

Suggested Citation

Ogneva, Maria and Xia, Jingjing, What Moves the Market? Individual Firms’ Earnings Announcements Versus Macro Releases As Drivers of Index Returns (April 30, 2021). Available at SSRN: https://ssrn.com/abstract=3837800 or http://dx.doi.org/10.2139/ssrn.3837800

Maria Ogneva (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

Jingjing Xia

City University of Hong Kong (CityU) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

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