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Caught by Surprise: How Markets Respond to Macroeconomic News

70 Pages Posted: 6 Apr 2022 Last revised: 21 Mar 2023

See all articles by Guido Baltussen

Guido Baltussen

Erasmus University Rotterdam (EUR); Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Robeco Quantitative Investments

Amar Soebhag

Erasmus University Rotterdam (EUR) - Department of Business Economics; Robeco Asset Management

Date Written: March 16, 2022

Abstract

We develop a novel real-time metric of macroeconomic surprises across hundreds of macroeconomic series and examine surprises across the globe. Economic surprises display sizable short-term momentum, driven by predictable errors in consensus forecasts. Forecasts display underreaction to a series' own time-series behavior and information contained in other releases. The 'economic surprise momentum' is especially strong in economic growth measures and is creating sizable and significant return predictability in risky asset classes (equities, credits, commodities). Our results align with aggregate underreaction by macroeconomic forecasters and investors.

Keywords: Macroeconomic news, Surprises, Return Predictability, Momentum

JEL Classification: G12, G15, G40

Suggested Citation

Baltussen, Guido and Soebhag, Amar, Caught by Surprise: How Markets Respond to Macroeconomic News (March 16, 2022). Available at SSRN: https://ssrn.com/abstract=4059314 or http://dx.doi.org/10.2139/ssrn.4059314

Guido Baltussen (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3011 AG
Netherlands

Amar Soebhag

Erasmus University Rotterdam (EUR) - Department of Business Economics ( email )

Netherlands

Robeco Asset Management ( email )

Rotterdam, 3011 AG
Netherlands

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