Abstract
I present evidence of a complementary relation between macro announcements and firm-specific news by examining how macro news affects investors’ reactions to earnings announcements. It is well known that investors tend to react to earnings news slowly and there are drifts following firms’ earnings announcements. The presence of macro news significantly impacts investors’ reactions to earnings news: immediate price reaction is 17% stronger and the drift is 71% weaker when important macro news is released on the same day. This effect also exists when earnings news is released on days with a large number of macro announcements. I further investigate several potential explanations and find that institutional investors pay substantially more attention to announcing firms on macro-news days. The results cannot be explained by changes in risk, information transmission from macro news or strategic timing. Overall, these findings provide new evidence that the market is more efficient on macro-news days and investor attention is allocated rationally and is not always limited by the quantity of information.
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