Economics at your fingertips  

The stock market’s reaction to macroeconomic news under ambiguity

Ariel Viale (), Antoine Giannetti and Luis Garcia-Feijoó
Additional contact information
Antoine Giannetti: Florida Atlantic University
Luis Garcia-Feijoó: Florida Atlantic University

Financial Markets and Portfolio Management, 2020, vol. 34, issue 1, No 3, 65-97

Abstract: Abstract We investigate the quality of the information that macroeconomic news conveys to the stock market about future business conditions. Our econometric approach is consistent with the decision problem of an investor concerned with ambiguity, which allows us to recover a theoretically motivated and empirically tractable proxy of time-varying ambiguity in the stock market. We find the stock market reacts more strongly to negative rather than positive real and monetary macroeconomic news, which is consistent with the predictions of the ambiguity literature. Further, the indirect effect of ambiguous news on investors’ loss of confidence in the signal can contribute up to 80% of the stock market’s reaction. Our findings offer a potential explanation for the weak results of the prior early literature using low-frequency data; they also offer an alternative explanation for the apparent counterintuitive results of the more recent literature using high-frequency data.

Keywords: The stock market; Time-varying ambiguity; Macroeconomic news; Maximum entropy (search for similar items in EconPapers)
JEL-codes: C1 C12 G1 G14 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/11408/PS2

DOI: 10.1007/s11408-019-00342-3

Access Statistics for this article

Financial Markets and Portfolio Management is currently edited by Manuel Ammann

More articles in Financial Markets and Portfolio Management from Springer, Swiss Society for Financial Market Research Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2022-11-20
Handle: RePEc:kap:fmktpm:v:34:y:2020:i:1:d:10.1007_s11408-019-00342-3