Size, Book-to-Market Ratio and Macroeconomic News
43 Pages Posted: 25 Oct 2006 Last revised: 19 Feb 2014
Date Written: November 20, 2010
Little is known about the reactions of daily returns on portfolios with different characteristics to unexpected changes in macroeconomic conditions. This paper fills this void by analyzing the reactions of daily returns on portfolios formed on size and book-to-market ratio to news about a wide range of macroeconomic variables. Returns on different portfolios not only react to different news but also react differently to the same news. Reactions of portfolios to macroeconomic news also change over the business cycle. Results are strongest for news about employees on nonfarm payrolls in expansions. Both at daily and monthly frequencies, large and growth firms react differently to employment news from small and value firms in expansions but not in recessions. Differences in the sensitivities of expected future cash flows to employment news in expansions can help explain differences in the observed reactions.
Keywords: Macroeconomic News, Size, Book-to-Market Ratio, Fama-French Factors
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation