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Macroeconomic News Announcements Effect on Stock Prices. Allison Keane. Outline. Background Mathematics Variables Overview Results Extensions. Background Mathematics. Regression R t = β k S k,t + ε t Returns R on = P open,t+1 – P close,t R 10 = P 10,t+1 - P close,t
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Macroeconomic News Announcements Effect on Stock Prices Allison Keane
Outline • Background Mathematics • Variables Overview • Results • Extensions
Background Mathematics • Regression • Rt = βkSk,t + εt • Returns • Ron = Popen,t+1 – Pclose,t • R10 = P10,t+1 - Pclose,t • Standardization • RV = Σr2 RVweek = average of past 7 days RV • Calculated using 5 minute returns • Rt = Ron,t / √RVt-1 • Rt = Ron,t / √RVweek • Sk,t = (Ak,t – Ek,t ) / σk
Variables • Stocks • PG, KFT, AIG, GM, F • 2002 – 2007 • Announcements • PPI, CPI, Durable Goods, Industrial Production, Retail Sales, Average Work Week, Unemployment Rate, Hourly Earnings, Nonfarm Payrolls, Capacity Utilization, Business Inventories, Personal Income
Regressions Rt = βkSk,t + εt Rt = βk(np) t + βk(he) t + βk(aww) t + βk(ur) t + εt Rt = βk(pt) t + βk(cpi) t + εt Rt = βk(bi) t + βk(r) t + εt Rt = βk(cu) t + βk(ppi) t + βk(d) t + βk(i) t + εt
Extensions • Add more announcements • Add more stocks • Different regressions • Different variable combinations • See if response varies with sign • Βk = β0+ β1k,t Sk,t if S<0 = β2+ β3k,t Sk,t if S>0
