Rounding and the Impact of News: A Simple Test of Market Rationality

16 Pages Posted: 21 Mar 2007

See all articles by Meredith J. Beechey

Meredith J. Beechey

Monetary Policy Division, Sveriges Riksbank

Jonathan H. Wright

Johns Hopkins University - Department of Economics

Date Written: February 2007

Abstract

Certain prominent scheduled macroeconomic news releases contain a rounded number on the first page of the release that is widely cited by newswires and the press and a more precise number in the text of the release. The whole release comes out at once. We propose a simple test of whether markets are paying attention to the rounded or unrounded numbers by studying the high-frequency market reaction to such news announcements. In the case of inflation releases, we find evidence that markets systematically ignore some of the information in the unrounded number. This is most pronounced for core CPI, a prominent release for which the rounding in the headline number is large relative to the information content of the release.

Keywords: News Announcements, Rounding, Market Efficiency, Rational Inattention

JEL Classification: E44, G14

Suggested Citation

Beechey, Meredith J. and Wright, Jonathan H., Rounding and the Impact of News: A Simple Test of Market Rationality (February 2007). FEDS Working Paper No. 2007-5, Available at SSRN: https://ssrn.com/abstract=970323 or http://dx.doi.org/10.2139/ssrn.970323

Meredith J. Beechey (Contact Author)

Monetary Policy Division, Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

Jonathan H. Wright

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States

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