Caught by Surprise: How Markets Respond to Macroeconomic News

65 Pages Posted: 6 Apr 2022

See all articles by Guido Baltussen

Guido Baltussen

Erasmus University Rotterdam (EUR); 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. Economic surprises display sizable short-term autocorrelation, driven by predictable errors in consensus forecasts. The resulting 'economic surprise momentum' is present across all major regions and especially strong in economic growth measures. Economically, macroeconomic surprises positively predict returns in risky asset classes (equities, credits, commodities) across the globe. These results cannot be attributed to increased risks and are hard to reconcile with traditional asset pricing models.

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

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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