Is the intrinsic value of a macroeconomic news announcement related to its asset price impact?

Gilbert, Thomas; Scotti, Chiara; Strasser, Georg; Vega, Clara

doi:10.1016/j.jmoneco.2017.09.008

Cited by 67 publications

(22 citation statements)

References 24 publications

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“…Gürkaynak, Sack, and Swanson (2005a) use the same surprise data and find a strong impact of macro surprises on long-term yields. Gilbert (2011) shows that the reaction of the S&P500 to these surprises is consistent with predictions of rational expectations trading models, whereas Gilbert, Scotti, Strasser, and Vega (2017) show that the intrinsic value of macro surprises drives the financial markets response. Ghosh and Constantinides (2016) show innovations in macroeconomic variables are highly correlated with the dividend-price ratio.…”

Section: A Related Literaturesupporting

confidence: 56%

Monetary Policy and the Stock Market: Time-Series Evidence

Neuhierl

Weber

2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We construct a slope factor from changes in federal funds futures of different horizons. Slope predicts stock returns at the weekly frequency: faster monetary policy easing positively predicts excess returns. Investors can achieve increases in weekly Sharpe ratios of 20% conditioning on the slope factor. The tone of speeches by the FOMC chair correlates with the slope factor. Slope predicts changes in future interest rates and forecast revisions of professional forecasters. Our findings show that the path of future interest rates matters for asset prices, and monetary policy affects asset prices throughout the year and not only at FOMC meetings. Terms of use: Documents in EconStor mayJEL-Codes: E310, E430, E440, E520, E580, G120.Keywords: return predictability, policy speeches, expected returns, macro news. Andreas Neuhierl I IntroductionThe FOMC will, of course, carefully deliberate about when to begin the process of removing policy accommodation. But the significance of this decision should not be overemphasized, because what matters for financial conditions and the broader economy is the entire expected path of short-term interest rates and not the precise timing of the first rate increase.Janet L. Yellen (2015) ...policy deliberations happen on a rather continuous basis. Kevin Warsh (2015)The main objectives of the Federal Reserve (Fed) under its dual mandate are price stability and maximum employment. The Fed funds rate is the Fed's main conventional policy tool to achieve those goals. But whereas real consumption, investment, and GDP only respond with a lag to changes in the target rate, asset prices respond directly and immediately.Yellen's quote, however, highlights that asset prices might react not only to changes in short-term interest rates, but also to changes in expectations about the speed of monetary policy loosening and tightening. Previous governor Warsh, instead, stresses that monetary policy decisions happen continuously rather than only on eight scheduled Federal Open Market Committee (FOMC) meetings that are the focus of a large event study literature.We use weekly changes in the one-month and three-month federal funds futuresimplied rates to test for the effect of changes in the future path of monetary policy on asset prices throughout the year.1 Specifically, we argue that changes in one-month futures, f f t,1 , affect all future target rates, and we can interpret it as a level factor.Changes in the three-month futures, f f t,3 ...

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Section: A Related Literaturesupporting

confidence: 56%

Monetary Policy and the Stock Market: Time-Series Evidence

Neuhierl

Weber

2016

SSRN Journal

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“…Fourth, central bank communication has remained an important monetary policy tool." Similar results obtain for announcements by other central banks and other types of news (seeAndersen and Bollerslev 1998;Gilbert et al, 2017, and references therein).4 See, for example, Azariadis (1993), Rocheteau and Wright (2013), and Gu et al (2013) for details in OLG, search, and credit models, respectively; we also sketch the ideas in Section 2.…”

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confidence: 58%

The Effects of News When Liquidity Matters

Han

Wright

2020

Int Economic Review

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We analyze the impact of news (information shocks) in economies where liquidity matters, including those with endogenous credit limits, and those with assets serving as collateral or media of exchange. Although we also consider news about productivity and credit conditions, a leading case concerns monetary policy announcements. Real or monetary news has big effects on markets, potentially causing cyclic or boom-bust responses, even though we focus on the unique transition consistent with stationarity after shocks. In particular, policy announcements may induce instead of reduce volatility. We also discuss the implications for the inflation puzzle, forward-guidance puzzle, and other apparent anomalies.

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“…In case of liquidation, it's a measure of the quota of assets attributable to each share. (Patel et al, 2015;Gilbert et al, 2017) 3 : C…”

Section: Identification Of Criteria and Research Frameworkmentioning

confidence: 99%

A Hybrid Grey McDm Approach for Asset Allocation: Evidence From China’s Shanghai Stock Exchange

Mills

Baafi

Amowine

et al. 2020

Journal of Business Economics and Management

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Asset allocation is a critical concern for any investor in the financial market. This paper aims to prioritize five randomly selected firms from the top ten stocks by market capitalization of the Shanghai Stock Exchange (SSE) by opting for adequate financial procedures and practical criteria under uncertain conditions. Decision makers want not only the ranking order of stocks but also capital proportions to be allocated. Therefore, this study uses a hybrid multi-criteria decision-making (MCDM) approach comprising of an integrated analytic network process (ANP) and decision making trial and evaluation laboratory (DEMATEL) in a grey environment for optimal portfolio selection to provide both ranking and weighting information for decision makers. Results indicate that return, financial ratios, dividends, and risk are causal criteria group, which are the most influential determinants for obtaining high benefits with regards to stock portfolio selection in SSE. The free float of stocks is the least influencing criterion among all identified criteria of stock portfolio selection of SSE. The Industrial and Commercial Bank of China Ltd. stocks have the highest allocated proportion with the highest priority shown by investors and can be described as a suitable alternative. The practical implications of this research are that the approach, when applied, highlights how the grey system theory minimizes the uncertainties in all stages of decision-making of portfolio selection.

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Is the intrinsic value of a macroeconomic news announcement related to its asset price impact?

Cited by 67 publications

References 24 publications

Monetary Policy and the Stock Market: Time-Series Evidence

Monetary Policy and the Stock Market: Time-Series Evidence

The Effects of News When Liquidity Matters

A Hybrid Grey McDm Approach for Asset Allocation: Evidence From China’s Shanghai Stock Exchange

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