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Impact of Macroeconomic Announcements on US Equity Prices: 2009 – 2013 Daniel Nadler1) and Anatoly B. Schmidt2) Kensho Technologies 17 Dunster St., Suite 300, Cambridge, MA 02138 1)email: firstname.lastname@example.org 2)email: email@example.com
History Chen, Roll, and Ross (1986): Macroeconomic developments are undiversified risk within the APT framework and hence merit excess returns. However, economic theory does not determine which economic variables are responsible for excess returns. Influential works: Balduzziet al (2001); Flannery & Protopapadakis (2002); Andersen et al (2003); Hautsch & Hess (2007); Gilbert et al (2010); Evans (2011). Excess returns for US equity indexes and bonds on the days of macroeconomic announcements prior to 2009: Savor & Wilson (2013) and Dicke & Hess (2012)
Specifics of This Work Details in http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2364077 Time period: January 2009 - July 2013 18 major macroeconomic indicators Equity ETFs: : S&P 500 SPDR (SPY), Financial Select Sector SPDR (XLF), Industrial Select Sector SPDR (XLI), and Consumer Discretionary Select Sector SPDR (XLY). The autoregressive model includes both the announcement event factors (dummy variables) and the announcement surprise factors. The latter are proportional to the difference between the announced and expected macroeconomic indicator values. Volatility is accounted by the GARCH process.
Statistics for SPY daily returns on the days of macroeconomic announcements
The Model ARMA(p, q) + GARCH(m, n) RUGARCH software (Ghalanos, 2013) Parsimonious model: 1stminimum of Akaike criterion => m=2 and n=p=q=1. ri(t) = μi + ai,1ri(t-1) +bi,1 εi(t-1) +εi(t) εi(t) = z(t)σi(t), z(t) ~ N(0,1) σi2(t) = ωi + αi,1 εi2(t-1) + αi,2 εi2(t-2) + βi,1 σi2(t-1); Sk(t) = [Ak(t) – Ek(t)]/Σk Akand Ekfrom Haver Analytics
Results I Macroeconomic announcements with high statistical significance: ISM Manufacturing Index Non-Farm Payrolls International Trade Balance Index of Leading Indicators Housing Starts Jobless Claims and, to a lesser extent, Factory Orders New Home Sales GDP Retail Sales
Results II Trading startegies: Buy-and-hold (B&H) Realized daily returns on the announcement days of all 18 macroeconomic indicators (Model #18) Realized returns on the days of announcements of those indicators whose regression coefficients have statistical significance with p-value < 0.05 (Model p5) Realized returns on the days of announcements of those indicators whose regression coefficients have statistical significance with p-value < 0.25 (Model p25)
Results IV Performance of announcement-based trading strategies: SPY Effective Sharpe ratio: Sh= R); R - compound return; σ -standard deviation of mean daily returns on T announcement days in the sample when the strategy is exposed to market risk.
Results V Performance of announcement-based trading strategies: XLI
Results VI Performance of announcement-based trading strategies: XLY
Results VII Performance of announcement-based trading strategies: XLF