Caught by Surprise: How Markets Respond to Macroeconomic News
65 Pages Posted: 6 Apr 2022
Date Written: March 16, 2022
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: Suggested Citation