The Stock Market's Reaction to Unemployment News: Why Bad News is Usually Good for Stocks

Boyd, John H.; Jagannathan, Ravi; Hu, Jian

doi:10.3386/w8092

Cited by 105 publications

(125 citation statements)

References 13 publications

(18 reference statements)

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“…McQueen and Roley (1993) found strong evidence of a cyclical variation in the reaction of stock market responds to news about inflation and real activity. Boyd et al (2005) showed that the stock market's reaction to unemployment news depends on the state of the national economy.…”

Section: Literature Reviewmentioning

confidence: 99%

The response of hotel performance to international tourism development and crisis events

Chen

2011

International Journal of Hospitality Management

171

106

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a b s t r a c tThis study uses panel regression tests to examine the response of hotel performance to international tourism development and crisis events in Taiwan. Hotel performance measures are revenue (revenue per available room and occupancy rate), profitability (return on assets and return on equity) and stock performance. The crises were the earthquake on September 21, 1999 (the 9/21 earthquake), the terrorist attacks of September 11, 2001 in the US (the 9/11 terrorist attacks) and the outbreak of Severe Acute Respiratory Syndrome on April 22, 2003 (the SARS outbreak). This study makes four major contributions. First, test results confirm that international tourism development (ITD), proxied by the growth of total inbound tourist arrivals, has a more direct influence on hotel sales and profitability than it does on hotel stock performance. Second, this study identifies that the absence of a strong tie between ITD and hotel stock returns that was found in previous studies is due to the time-varying discount rate caused by investors' changing expectations for the prospect of future cash flows from holding hotel stocks. Third, this study finds new evidence that while the poor performance of hotel stocks caused by the 9/21 earthquake and the 9/11 terrorist attacks was attributed to the loss of hotel sales revenue, the adverse effect of the SARS outbreak on hotel stock returns is attributed not only to decreased hotel sales revenue but also to the increased discount rate. Lastly, this study is the first to investigate whether the response of hotel stock returns to ITD depends on the state of economy and concludes that the response of hotel stock performance to ITD in business cycle contraction is statistically different from that in business cycle expansion. Further, although the influence of ITD on hotel stock performance is still irrelevant during expansion periods, ITD can significantly enhance hotel stock returns during contraction periods.

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Section: Literature Reviewmentioning

confidence: 99%

The response of hotel performance to international tourism development and crisis events

Chen

2011

International Journal of Hospitality Management

171

106

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“…22. Yet a third interpretation in terms of the informational content of unemployment news on equity returns is possible: bad unemployment news are interpreted as 'good news' during expansions, but as bad news during recessions (Boyd et al 2005). Still, this interpretation boils down to state-contingent redistributive shocks.…”

Section: Correlation Between Stock Prices and Income Riskmentioning

confidence: 99%

Temperance in Stock Market Participation: Evidence from France

Arrondel¹,

Calvo‐Pardo

Oliver

2010

Economica

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We explore empirically whether earnings uncertainty and borrowing constraints deter households from the stock market, consistent with the predictions of theoretical studies of portfolio choice in the presence of uninsurable earnings. Since recent extensions highlight the importance of the correlation between earnings and financial risks, here we use a self-assessed proxy from the DELTA-TNS 2002 cross-sectional survey to empirically assess the impact. Although income risk does not affect the participation decision of households' reporting a negative correlation, it does lower the participation of those who report a nonnegative sign, consistent with economic theory predictions.

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“…Hautsch and Hess (2002) analyze the effect that several macroeconomic variables, including monthly unemployment, have on means and variances of interest rate changes. Boyd, Hu, and Jagannathan (2005) look at the effect of monthly employment news on stocks and bonds.…”

Section: Introductionmentioning

confidence: 99%

The Impact on Interest Rates of Unemployment Announcements and Their Revisions

Gunderson

Sterbenz

2010

The Financial Review

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The announced changes in monthly employment reports and in weekly new unemployment claim reports are based on new levels and on revisions to previous levels. We analyze the effect on interest rates of surprises to these two separate components of the changes. We find that for weekly reports the effect on interest rates of the new level is greater than the effect of the revisions. For monthly employment reports, the two components' effects have similar strength. Copyright (c) 2010, The Eastern Finance Association.

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The Stock Market's Reaction to Unemployment News: Why Bad News is Usually Good for Stocks

Cited by 105 publications

References 13 publications

The response of hotel performance to international tourism development and crisis events

The response of hotel performance to international tourism development and crisis events

Temperance in Stock Market Participation: Evidence from France

The Impact on Interest Rates of Unemployment Announcements and Their Revisions

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