Dispersed Macroeconomic Information: Announcements, Revisions & Stock Returns
Posted: 13 Oct 2008
There are 2 versions of this paper
Information Aggregation Around Macroeconomic Announcements: Revisions Matter
Date Written: November 15, 2007
Abstract
I analyze the link between macroeconomic announcement surprises, intradaily returns on the S&P500 Index, and the subsequent revisions to the announced data. I show that announcement-day returns contain information about the future revisions of the released figures. This information is unrelated to the initial announcement surprises and predicts the future revisions: Prices increase when the subsequent revisions will be positive. This observation is strongest for real activity and investment variables such as Nonfarm Payroll, Industrial Production, and Factory Orders. I develop a rational expectations trading model where the final payoff is the sum of non-overlapping fractions of the economy that were previously observed as private signals. A preliminary public announcement does not convey new information to the market per se, but rather allows investors to deduce other investors' information. In turn, this allows them to assess the inaccuracy of the public signal and therefore estimate its future revision. In equilibrium, the risky asset's price changes in anticipation of the public signal's revision, even though the initial surprise may be in the opposite direction.
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