The real-time information content of macroeconomic news: implications for firm-level earnings expectations

Jose M. Carabias

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper investigates the usefulness of the real-time macroeconomic news-flow as a leading indicator of firm-level end-of-quarter realized earnings. Using recent advances in macroeconomics, I develop a nowcasting model for quarterly earnings and provide two main findings. First, I show that my model provides out-of-sample expectations that are as accurate as analysts’ forecasts. Second, macroeconomic news embedded in my nowcasts is not fully incorporated into investors’ earnings expectations and predicts future abnormal returns around earnings announcements. These findings have three main implications for capital markets research. First, real-time macroeconomic news can be used to update earnings expectations in real-time. Second, there are economic benefits of doing so, as evidenced by the magnitude of risk-adjusted returns around earnings announcements. Third, after three decades of almost nonexistent research on time-series models for quarterly earnings, the door is open again for fruitful research in this area.

Keywords: macroeconomic news; earnings expectations; market efficiency; return predictability (search for similar items in EconPapers)
JEL-codes: E32 G14 M41 (search for similar items in EconPapers)
Date: 2018-03-01
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Citations: View citations in EconPapers (7)

Published in Review of Accounting Studies, 1, March, 2018, 23(1), pp. 136-166. ISSN: 1380-6653

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:86399

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