Main Street's Pain, Wall Street's Gain

58 Pages Posted: 27 Dec 2021 Last revised: 9 Jan 2025

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: October 27, 2024

Abstract

We propose a fiscal policy expectations mechanism. When bad macro news arrives (in our study, when initial jobless claims (IJC) are higher than expected), investors may expect more generous government spending and drive up aggregate stock prices through the expected cash flow channel. Using a time-series sample from January 2013 to March 2021, we find that this phenomenon emerges when newspapers mention fiscal policy more. In the cross section, firms expected to receive more government spending -- through stimulus supports during COVID-19 or procurement contracts before 2020 -- exhibit higher individual stock returns when bad IJC shocks arrive.

Keywords: JEL Classification: G12, E62, E63, H3 return dynamics, macroeconomic news announcement, labor news, fiscal policy expectations, COVID-19, textual analysis, cross section

JEL Classification: G12, E62, E63, H3

Suggested Citation

Xu, Nancy R. and You, Yang, Main Street's Pain, Wall Street's Gain (October 27, 2024). 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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