What Triggers Stock Market Jumps?

We examine next-day newspaper accounts of large daily jumps in 19 national stock markets to assess their proximate cause, clarity as to cause, and geographic source. Our sample of over 8,000 jumps, reaching back to 1900 for the United States, yields several novel findings. First, news about monetary policy and government spending triggers twice as many upward jumps as downward ones and a highly disproportionate share of all upward jumps. Second, upward jumps due to monetary policy and government spending are much more frequent after a stock market crash. In this sense, the “Fed put” emerged decades before the 1990s, extends to other central banks, and characterizes fiscal policy as well. Third, greater perceived clarity about the reason for a jump foreshadows lower market volatility. Clarity trends up over the past century and is unusually high for jumps triggered by monetary policy. Fourth, leading newspapers attribute 38 percent of jumps in their own national stock markets to US economic and policy developments. The US role in this regard dwarfs that of Europe and China.