Expectation dispersion, uncertainty, and the reaction to news

Benjamin Born, Jonas Dovern and Zeno Enders

No 15581, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Releases of key macroeconomic indicators are closely watched by financial markets. We investigate the role of expectation dispersion and economic uncertainty for the stock-market reaction to indicator releases. We find that the strength of the financial market response to news decreases with the preceding dispersion in expectations about the indicator value. Higher uncertainty, in contrast, increases the response. We rationalize our findings in a model of imperfect information. In the model, dispersion results from a perceived weak link between macroeconomic indicators and fundamentals that reduces the informational content of indicators, while higher fundamental uncertainty makes this informational content more valuable.

Keywords: Expectation dispersion; Uncertainty; Macroeconomic news; stock market; Event study; Forecaster dispersion (search for similar items in EconPapers)
JEL-codes: E44 G12 G14 (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Expectation dispersion, uncertainty, and the reaction to news (2023)
Working Paper: Expectation Dispersion, Uncertainty, and the Reaction to News (2020)
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