Aggregate earnings surprises, monetary policy, and stock returns

Lindsey A. Gallo, Rebecca N. Hann and Congcong Li

Journal of Accounting and Economics, 2016, vol. 62, issue 1, 103-120

Abstract: This paper examines whether the negative association between aggregate earnings and returns is explained by the monetary policy news in aggregate earnings. Using Federal funds futures data to construct a measure of policy news, we find that aggregate earnings convey information about the Fed׳s policy actions. Additionally, the negative aggregate earnings-returns association is muted when we control for policy surprises. This result is more pronounced in periods with negative policy surprises, which tend to trigger a more significant market reaction. Taken together, these results suggest that aggregate earnings convey policy news and the market reacts negatively to policy surprises, which drives the negative aggregate earnings-returns association.

Keywords: Aggregate earnings; Monetary policy; Stock returns; Federal funds futures (search for similar items in EconPapers)
JEL-codes: E44 E52 M41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:62:y:2016:i:1:p:103-120

DOI: 10.1016/j.jacceco.2016.04.003

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