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

See all articles by Chen Gu

Chen Gu

Shanghai Business School - Research Center of Finance

Denghui Chen

Government of the United States of America - Risk Analysis Division

Raluca Stan

University of Minnesota - Duluth

Date Written: April 23, 2021

Abstract

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

Gu, Chen and Chen, Denghui and Stan, Raluca, Investor Sentiment and the Market Reaction to Macroeconomic News (April 23, 2021). Journal of Futures Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3852260

Chen Gu (Contact Author)

Shanghai Business School - Research Center of Finance ( email )

Shanghai
China

Denghui Chen

Government of the United States of America - Risk Analysis Division

400 7th Street SW
Washington, DC 20219
United States

Raluca Stan

University of Minnesota - Duluth ( email )

1049 University Drive
Duluth, MN 55812
United States

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