Macroeconomics news and the stock market

Do stock market returns predict changes to output? Evidence from a nonlinear panel data model

“…Geske and Roll (1983, along with Fama (1990) and Schwert (1990), also found strong relations between stock returns and real activity. Similar relationships have been identified in Canada (Barro, 1990, Cozier andRahman, 1988), Japan, Korea (Kwon and Shin, 1999), Germany, and the United Kingdom (Mullins and Wadhwani, 1989), the G-7 (Choi, 1999) and European countries (Wahlroos and Berglund, 1986, and Wasserfallen, 1989.…”

US Stock Market And Macroeconomic Factors

“…This measure has been included both in levels and in first differences. Wasserfallen (1989), a positive relationship between the stock market and both GDP and IPI may be expected. Thus, higher prices in the stock market are associated with higher values for both variables (GDP and IPI), and their behavior proceeds according to the stock market cycle: good news in the financial economy also means good news in the real economy and vice versa.…”

“…In this sense, the works of Peiro (1996), Humpe and Macmillan (2009) and Wasserfallen (1989) analyze the expected signs in terms of the ratio of the stock market to macroeconomic factors, and Table 1 shows the most important results. Peiró (1996), Humpe and Macmillan (2009) and Wasserfallen (1989) …”

“…However, they do not find agreement in their conclusions. For example, Rapach et al (2005), Schwert (1990), Wasserfallen (1989), Chan et al (1998), Flannery and Protopapadakis (2002) and Maio and Philip (2014) conclude that there is a clear relationship between the stock market and macroeconomic variables, although the signs are unclear in some cases. Authors such as Fischer and Merton (1984) conclude their investigation by claiming that stock returns predict future production.…”

Stock Price Distributions and News: Evidence from Index Options

“…1 Goodhart and Smith (1985) examined the relationship between U.K. stock market prices and surprises to the money supply, the retail prices index (inflation) and the government spending and trade deficits. They found that only the inflation surprise moved the stock market, while papers by Cutler, Poterba and Summers (1989) for the U.S. and Wasserfallen (1989) for a selection of European countries both concluded that macroeconomic news variables are able to explain only a tiny fraction of the variability of stock returns. McQueen and Roley (1993) found that by allowing for different stages in the business cycle, that a stronger relation between stock returns and news was evident.…”