Macroeconomic News Research Articles

A Fundamental Connection: Exchange Rates and Macroeconomic Expectations

Abstract We disprove the exchange rate macroeconomic disconnect puzzle by showing that macroeconomic news can explain most variation in exchange rates at monthly and quarterly frequencies, accounting for up to 91 percent of the quarterly exchange rate variation during US recessions and 65 percent over all periods. The main driver of the reconnect is exchange rates responding to past news—a result inconsistent with the theory of uncovered interest rate parity under full information rational expectations (UIP-FIRE). We discuss theoretical models that can explain this surprising result, including models featuring currency risk premia, regulatory or institutional frictions, or deviation from FIRE.

Firm Inattention and the Efficacy of Monetary Policy: A Text-Based Approach

Abstract This paper provides empirical evidence of the importance of firm attention to macroeconomic dynamics.We construct a text-based measure of attention to macroeconomic news and document that attention is polarized across firms and countercyclical. Differences in attention lead to asymmetric responses to monetary policy: expansionary monetary shocks raise market values of attentive firms more than those of inattentive firms, and contractionary shocks lower values of attentive firms by less. Attention also mitigates the effects of macroeconomic uncertainty on firm performance. In a quantitative rational inattention model that is calibrated with this new text-based measure, inattention drives monetary non-neutrality. As average attention varies over the business cycle, so does the efficacy of monetary policy.

Exploiting News Analytics for Volatility Forecasting

ABSTRACTThis study investigates the potential of news sentiment in predicting stock market volatility. We augment traditional time series models of realized volatility with the sentiment of macroeconomic and firm‐specific news. Our results demonstrate that incorporating the sentiment of domestic macroeconomic news significantly improves volatility predictions for individual stocks and the S&P 500 Index. Notably, we find substantial enhancements in long‐horizon volatility predictions when including the sentiment of macroeconomic news in the regression models. In contrast, firm‐specific news sentiment shows only modest predictive power in the general framework. However, expanding the set of predictors to include the news count of firm‐specific news occurring overnight between two consecutive trading periods significantly improves one‐period‐ahead volatility forecasts.JEL Classification: C53, C55, C58, G14, G17

Do markets pay attention to political disinformation?

They do, but not in ways one might think. Using an example from the 2016 Presidential election in the United States, we show that days with heavy doses of disinformation related to the candidates do not affect broad index stock returns. However, disinformation that was strongly pro-Hillary Clinton was associated with a substantial lowering of conditional volatility of stocks, even when controlling for other macroeconomic news and news sentiment.

U.S. macroeconomic news and low-frequency changes in bond yields in Canada, Sweden and the U.K.

This paper investigates the importance of U.S. macroeconomic news in driving low-frequency fluctuations in the term structure of interest rates in Canada, Sweden, and the U.K. We follow two complementary approaches: First, we apply a regression-based framework that aggregates the impact of daily macroeconomic news on bond yields to a lower quarterly frequency. Next, we estimate a macro-finance affine term structure model linking the daily news to lower-frequency changes in bond yields and its expectations and term premia components. Both approaches show that U.S. macroeconomic news is an important source of lower-frequency quarterly fluctuations in bond yields in these open economies, and even more important than their respective domestic macroeconomic news. Furthermore, the macro-finance model shows that U.S. macroeconomic news is particularly important in explaining low-frequency changes in the expectation components of the nominal, real, and break-even inflation rates.

Macroeconomic news and price jumps: evidence from ETFs and LOFs in China

PurposeWe examine the relationship between macroeconomic news and fund price jumps, using high-frequency 5-min intraday data for Exchange Traded Funds (ETFs) and Listed Open-end Funds (LOFs) from 2019 to 2020.Design/methodology/approachWe utilize the non-parametric jump test known as the LM method to detect fund price jumps. In addition, we perform Logistic regression to analyze the relationship between macroeconomic news and fund price jumps. Moreover, we use multiple linear regression to explore the relationship between fund price jumps and subsequent returns.FindingsThe probability of price jumps increases by 22.56% when macroeconomic news is released. Moreover, the returns associated with news-driven price jumps display a reversal pattern, and there is an asymmetric relationship in subsequent returns following macroeconomic shocks. Specifically, funds tend to exhibit lower returns after news-driven price jumps compared to those that are not influenced by news events.Research limitations/implicationsIn today's digital age, investors have unprecedented access to a wealth of information through the Internet and various communication platforms. News and market data can be instantly accessed and disseminated, allowing for swift dissemination of information to investors worldwide. However, despite this enhanced accessibility, investors continue to exhibit overreactions or underreactions to new information.Practical implicationsMacroeconomic news release provide crucial insights into the overall health and performance of the economy. By monitoring and analyzing these indicators, investors can gain valuable information that can guide their investment decisions. Furthermore, by fostering a transparent and reliable information disclosure systems, governments can play a critical role in ensuring the stability and transparency of the funds market.Originality/valueThe paper utilizes 5-min high-frequency data from funds and incorporates a comprehensive macroeconomic news information database. These methodological choices enhance the precision and reliability of the analysis, allowing for a more nuanced understanding of the relationship between macroeconomic news releases and fund price jumps.

Perceptions About Monetary Policy

Abstract We estimate perceptions about the Federal Reserve’s monetary policy rule from panel data on professional forecasts of interest rates and macroeconomic conditions. The perceived dependence of the federal funds rate on economic conditions varies substantially over time, in particular over the monetary policy cycle. Forecasters update their perceptions about the Fed’s policy rule in response to monetary policy actions, measured by high-frequency interest rate surprises, suggesting that they have imperfect information about the rule. Monetary policy perceptions matter for monetary transmission, as they affect the sensitivity of interest rates to macroeconomic news, term premia in long-term bonds, and the response of the stock market to monetary policy surprises. A simple learning model with forecaster heterogeneity and incomplete information about the policy rule motivates and explains our empirical findings.

Anatomy of sovereign yield behaviour using textual news

While the relationship between the information content of macroeconomic news and the behavior of asset prices has been studied extensively in the finance literature, this study provides a new perspective by examining the impact of textual news on sovereign bond yield spreads in an emerging country. This study used bond market news published in newspapers to develop the sentiment scores using a modified word dictionary to unravel news characteristics. A nonlinear regime-shifting regression model of Markov Regime Shifting (MRS) is used to understand the impact of news on sovereign bond yield spreads. The paper results show that textual news sentiment may explain both steepening and flattening of the yield curve, with monetary and fiscal policy news having the most significant impact on yield spread behaviour. The results hold key implications for policymakers, debt fund managers and other market participants.

Consumer inflation expectations: Daily dynamics

We use high frequency identification methods to study the response of consumer inflation expectations to many different types of events using data from the Federal Reserve Bank of New York’s Survey of Consumer Expectations. We identify the response of expectations to a large set of shocks, including FOMC meetings and macroeconomic data releases. We find that macroeconomic news and FOMC meetings with a press conference or rate cuts jointly move expectations.

Markovian analysis of U.S. Treasury volatility: Asymmetric responses to macroeconomic announcements

Extensive is the literature supporting the announcement effect of the release of pre-scheduled macroeconomic news on U.S. Treasuries conditional moments; nevertheless, none of them considered possible asymmetric responses to these news arrival depending on the latent regimes characterizing the U.S. economy. Owing to the peculiar U.S. interest rate environment over the last 23 years, not allowing for stochastic-switching states even in the GARCH-class models may miss important volatility pattern. Hence, the therein model proposes the first partitioning of Treasuries excess returns in different regimes (normal, crash and low-rate) through hidden Markov chains to, only in a subsequent moment, apply a conditional volatility GARCH-class model augmented by dummy variables accounting for macroeconomic release days. The same model is then re-run to assess the explanatory power of U.S. Treasury auctions within volatility modeling. Results point to a statistically significant and asymmetric effects imparted by both prescheduled macroeconomic releases and new issuances on U.S. Treasury excess returns depending on both the regime and the securities’ maturities, while evidencing the very different characteristics of GARCH and ARCH coefficients depending on the regime.

Macroeconomic news, senior officials' speeches, and emerging currency markets: An intraday analysis of price jump reaction

We examine intraday emerging currency jumps in response to domestic and foreign macroeconomic news announcements, as well as US senior officials' speeches. We use the robust-to-jump volatility estimator to estimate currency jumps. We provide evidence that both emerging currency jumps and cojumps exhibit significant and pronounced responses to US monetary policy and real activity news releases. Moreover, we find that domestic monetary policy and economic real activity data, and senior Federal Reserve officials' speeches, trigger significant jumps in emerging currencies, leading to large currency fluctuations that would disrupt market stability, undermining economic resilience and potentially diminishing ESG ratings.

Spending Less after (Seemingly) Bad News

ABSTRACTUsing high‐frequency spending data, we show that household consumption displays excess sensitivity to salient macroeconomic news, even when the news is not real. When the announced local unemployment rate reaches a 12‐month maximum, local news coverage of unemployment increases and local consumers reduce their discretionary spending by 1.5% relative to consumers in areas with the same macroeconomic conditions. Low‐income households display greater excess sensitivity to salience. The decrease in spending is not later reversed. Households in treated areas act as if they are more financially constrained than those in untreated areas with the same fundamentals.

Is gold always a safe haven?

This study reexamines the long-held view of gold as a universal safe haven during stock market downturns. Utilising a dataset from 1979 to 2020, we investigate the conditional nature of gold’s safe-haven status with the S&P 500 index, revealing that the specific drivers of market declines determine the extent of gold’s safe-haven status. Notably, gold’s protective efficacy is pronounced during downturns specifically triggered by macroeconomic news but less evident in downturns triggered by other reasons. Our result challenges traditional perceptions and suggests investors adopt a contextual approach to identifying safe haven assets.

The impact of macroeconomic news sentiment on interest rates

We provide evidence that sentiment extracted from articles related to interest rates, inflation, and the labor market has the ability to explain short-term interest rate movements that cannot be accounted for by professionals’ and consumers’ expectations. Additionally, sentiment can pin down two short rate regimes that are correlated with the business cycle. By combining these results with a yield curve model, we find that market sentiment has a statistically significant negative effect on the short end of the yield curve and a positive effect on the slope. We also show that sentiment improves the out-of-sample forecast accuracy of short-term yields.

Monetary Policy and Asset Price Overshooting: A Rationale for the Wall/Main Street Disconnect

ABSTRACTWe analyze optimal monetary policy and its implications for asset prices when aggregate demand has inertia. If there is a negative output gap, the central bank optimally overshoots aggregate asset prices (above their steady‐state levels consistent with current potential output). Overshooting leads to a temporary disconnect between the performance of financial markets and the real economy, but accelerates the recovery. When there is a lower bound constraint on the discount rate, good macroeconomic news is better news for asset prices when the output gap is more negative. Finally, we document that during the COVID‐19 recovery, the policy‐induced overshooting was large.

뉴스의 주가반응에 대한 연구

[Purpose]This study examines the impact of Korean news articles on stock valuations, exploring how news content and themes affect market participants’ predictions of corporate value and stock prices, thereby highlighting news’ role in shaping market perceptions. [Methodology]Our research method involved creating a deep learning－based news classification model to sort approximately 57 million Naver news articles from 2013 to 2021 into about 20 themes, including capital financing and technological advancements. We also analyzed market responses (stock returns) to these news themes and assessed how positive and negative news differently influenced market reactions. [Findings]Informative news significantly affects returns and trading volume within a minute, showing quick market responses. Positive news triggers faster and stronger market reactions than negative news. Moreover, market reactions vary by news theme, with earnings and macroeconomic news prompting rapid and significant responses. [Implications]This pioneering study on analyzing a large scale of Korean news data offers valuable insights for text analysis in accounting and finance. It helps investors better predict stock price reactions to news and could lessen the information gap between institutional and individual investors, ultimately improving stock market transparency and efficiency.

Do stress and overstatement in the news affect the stock market? Evidence from COVID-19 news in The Wall Street Journal

This study investigated the effect of media coverage on financial markets in response to COVID-19-related news. By collecting data from the United States Centers for Disease Control and Prevention, we study the effect of The Wall Street Journal's coverage and tone on stock markets. In particular, we attempted to measure media overstatements by comparing the number of articles and stress words with the number of COVID-19 cases. We obtained three main findings. First, investors discount macroeconomic news and objective measures of COVID-19. Second, excessive stress in the media tone leads to greater uncertainty and lower returns. Third, these results hold across sectors, although heterogeneity exists. Overall, long periods of high-stress sentiment and uncertainty affect investors more than single-day news.

Using The Federal Reserve’s Balance Sheet to Predict Macroeconomic Outcomes

This study investigates whether the U.S. Federal Reserve’s balance sheet can be used to predict macroeconomic outcomes. The Federal Reserve writes its own accounting standards, and I recast portions of the Federal Reserve’s weekly balance sheet as if it more closely followed Generally Accepted Accounting Principles. Specifically, I estimate the fair value of the Federal Reserve’s U.S. Treasury notes and bonds and calculate the associated unrealized gains and losses. I demonstrate that unrealized gains (losses) on the Federal Reserve’s U.S. Treasury notes and bonds are associated with lower (higher) one-quarter ahead inflation and real gross domestic product growth. Additionally, I show that modifying proxies for macroeconomic news to incorporate the predictive value of unrealized gains and losses on the Federal Reserve’s U.S. Treasury notes and bonds helps explain equity returns around the release of macroeconomic data.

The influence of media slant on short sellers

Using the positive shift in tone of Fox News coverage of macroeconomic news after the Republican Bush election in 2000, we investigate whether media slant influences the investment decisions of short sellers. We find that firms headquartered in Republican-leaning townships with Fox News availability experienced a relative decrease in short interest post the 2000 election. We further find that the relative decrease is more pronounced for firms that are more subject to investors' home bias. We interpret our findings to mean that short sellers, as sophisticated as they may be, are not immune to the slant in media coverage.

Understanding Analysts’ Use of Macroeconomic News

Using a comprehensive measure, the Macroeconomic News Index (MNI), we examine how analysts use macroeconomic news in their earnings forecasts. We find that analysts incorporate but underreact to quarterly macroeconomic news. Cross-sectionally, analysts’ reaction to macroeconomic news varies in a predictable way. Analysts incorporate macroeconomic news more efficiently when firms have lower exposure to the macro economy, when macroeconomic uncertainty is low, and when analysts have more industry-specific experience. Finally, we examine the implications of macroeconomic news on earnings formation and stock returns. We find that quarterly MNI is informative about the procyclicality of firms’ sales and costs and analysts underreact only to sales-side information. We also document that quarterly MNI is predictive of subsequent earnings announcement returns, indicating that investors also underreact to macroeconomic news. JEL Classifications: G12; G14; G24