Investor Sentiment and the Market Reaction to Macroeconomic News
Journal of Futures Markets, Forthcoming
32 Pages Posted: 28 May 2021 Last revised: 9 Jul 2021
Date Written: April 23, 2021
We provide evidence that the stock market response to macroeconomic news weakens in times of high investor sentiment. The reaction to macroeconomic information is 50 percent weaker in times of elevated bullish investor sentiment, relative to periods of low sentiment. This dampening effect holds for both good and bad macroeconomic news. Investor sentiment seems to hinder the incorporation of public information into asset prices. Our findings shed new light on how investor sentiment affects the link between fundamentals and security prices.
Keywords: Investor sentiment, Macroeconomic announcements, Market efficiency, Intraday data
JEL Classification: G02; G14
Suggested Citation: Suggested Citation