December 04, 2024
12:50
CORE C.035
Michele Modugno (Federal Reserve Bank)
will give a presentation on :
Decoding Equity Market Reactions to Macroeconomic News
Abstract :
We show that the reaction of the equity market to macroeconomic news is rationalized by their propagation into the real economy. We embody all the macro news in an activity and a price news indexes that together explain 34% of the quarterly stock price returns variation. When those indexes capture a stream of favorable macroeconomic surprises, publicly traded firms experience increases in revenues, profitability, financing, and investment activities. This firm-level result culminates in an expansion of the real side of the whole US economy. These results, taken together, show that the expectation of the realization of firms growth is the main driver of the stock prices reaction to macro news.