Expectation dispersion, uncertainty, and the reaction to news

Benjamin Born, Jonas Dovern and Zeno Enders

European Economic Review, 2023, vol. 154, issue C

Abstract: Key macroeconomic indicator releases are closely monitored by financial markets. We examine the impact of expectation dispersion and economic uncertainty on the stock market’s reaction to these indicators. 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 fundamental uncertainty makes their 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: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Expectation dispersion, uncertainty, and the reaction to news (2022)
Working Paper: Expectation Dispersion, Uncertainty, and the Reaction to News (2020)
Working Paper: Expectation dispersion, uncertainty, and the reaction to news (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:154:y:2023:i:c:s0014292123000697

DOI: 10.1016/j.euroecorev.2023.104440

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