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When does the stock market listen to economic news? New evidence from copulas and news wires

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  • Medovikov, Ivan

Abstract

We study association between macroeconomic news and stock market returns using the statistical theory of copulas, and a new comprehensive measure of news based on textual review and classification of news wires. We find the impact of economic news on equity returns to be nonlinear and asymmetric. In particular, controlling for economic conditions and surprises associated with releases of economic data, we find that the market reacts strongly and negatively to the most unfavourable macroeconomic news, but appears to largely discount the good news. Further, the most-unfavorable news creates price drift, and we document that selling stocks short in the wake of unusually-bad news yields annual abnormal gross returns greater than four percent.

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  • Medovikov, Ivan, 2016. "When does the stock market listen to economic news? New evidence from copulas and news wires," Journal of Banking & Finance, Elsevier, vol. 65(C), pages 27-40.
    • Handle: RePEc:eee:jbfina:v:65:y:2016:i:c:p:27-40
    DOI: 10.1016/j.jbankfin.2016.01.004
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    3. CNV Krishnan & Jialun Wu, 2022. "Market Misreaction? Evidence from Cross-Border Acquisitions," JRFM, MDPI, vol. 15(2), pages 1-19, February.
    4. Meng, Juan & Nie, He & Mo, Bin & Jiang, Yonghong, 2020. "Risk spillover effects from global crude oil market to China’s commodity sectors," Energy, Elsevier, vol. 202(C).
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    6. Bin Mo & Juan Meng & Guannan Wang, 2023. "Risk Dependence and Risk Spillovers Effect from Crude Oil on the Chinese Stock Market and Gold Market: Implications on Portfolio Management," Energies, MDPI, vol. 16(5), pages 1-17, February.
    7. Narayan, Paresh Kumar & Bannigidadmath, Deepa & Narayan, Seema, 2021. "How much does economic news influence bilateral exchange rates?," Journal of International Money and Finance, Elsevier, vol. 115(C).
    8. Yingli Wang & Xiaoguang Yang, 2018. "Asymmetric response to PMI announcements in China's stock returns," Papers 1806.04347, arXiv.org.
    9. Sendhil Mullainathan & Andrei Shleifer, 2005. "The Market for News," American Economic Review, American Economic Association, vol. 95(4), pages 1031-1053, September.
    10. Wang, Ziwei & Li, Youwei & He, Feng, 2020. "Asymmetric volatility spillovers between economic policy uncertainty and stock markets: Evidence from China," Research in International Business and Finance, Elsevier, vol. 53(C).
    11. Yong Ma & Lu Yan & Dongtao Pan, 2024. "The power of news data in forecasting tail risk: evidence from China," Empirical Economics, Springer, vol. 67(6), pages 2607-2642, December.
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    More about this item

    Keywords

    Stock returns; Macroeconomic news; Copulas; Tail dependence; Macroeconomic news index;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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