Do U.S. Macroeconomic Surprises Influence Equity Returns? An Exploratory Analysis of Developed Economies

We are all aware of how markets react around major macroeconomic announcements – unemployment, interest rate changes or not, housing starts etc. There is a large research body on how the US equity market reacts to the US announcements but less so on how international markets react to these. This paper tries to fill that gap.  It has been published in Quarterly Review of Economics and Finance


“Given the dominant role the U.S. economy plays in global trade, we explore how U.S. macroeconomic surprises affect stock markets in ten major developed economies as well as in China and India. We do not find strong enough evidence to conclude that U.S. macro shocks materially and consistently influence equity returns and volatilities in the economies studied. Consistent with previous research, it appears that only in few markets are return levels materially influenced by macro surprises generated in the U.S. Also, only a small number of macro shocks seem to be of any consistent significance. For returns levels, inflation, productivity, consumer confidence, and retail sales seem to matter. At the same time, condi- tional volatilities appear to be influenced by inflation, retail sales, durable goods, industrial production, consumer confidence, gross domestic product, and trade balance surprises. Finally, our exploratory anal- ysis indicates that the degree of bilateral trade connectedness may partially explain the extent to which macroeconomic surprises are transmitted across countries.”

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