Main Street's Pain, Wall Street's Gain

88 Pages Posted: 27 Dec 2021

See all articles by Nancy R. Xu

Nancy R. Xu

Boston College, Carroll School of Management

Yang You

The University of Hong Kong

Date Written: December 14, 2021

Abstract

We document an increasingly important role of fiscal policy expectation in stock return responses to macro surprises. In a persistent low-interest-rate economy, when the Main Street suffers more than expected, investors may expect a more generous Federal Government support and drive up the aggregate stock prices, leading to a novel "Main Street pain, Wall Street gain" phenomenon. We then conduct cross-sectional analysis using the Covid period, which features an unprecedented fiscal spending in focus. A one standard deviation increase in the Initial Jobless Claims (IJC) surprise (8.7%) significantly predicts higher daily major stock index returns of 26-38 basis points; firms/industries that suffer more -- unemployment surge, revenue decline -- show higher individual stock returns when bad IJC surprises arrive.

Keywords: return dynamics, macroeconomic news announcement, fiscal policy expectation, Covid-19, textual analysis, cross section

JEL Classification: G12, E30, E50, E60

Suggested Citation

Xu, Nancy R. and You, Yang, Main Street's Pain, Wall Street's Gain (December 14, 2021). Available at SSRN: https://ssrn.com/abstract=3980774 or http://dx.doi.org/10.2139/ssrn.3980774

Nancy R. Xu (Contact Author)

Boston College, Carroll School of Management ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

HOME PAGE: http://www.nancyxu.net

Yang You

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, HK
China

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