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 Standardization –RV = Σr 2 RV week = average of past 7 days RV Calculated using 5 minute returns –R t = R on,t / √RV t-1 –R t = R on,t / √RV week –S k,t = (A k,t – E k,t ) / σ k

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 R t = β k S k,t + ε t R t = β k (np) t + β k (he) t + β k (aww) t + β k (ur) t + ε t R t = β k (pt) t + β k (cpi) t + ε t R t = β k (bi) t + β k (r) t + ε t R t = β k (cu) t + β k (ppi) t + β k (d) t + β k (i) t + ε t

KFT o1t1o3t3 PPI CPI D I R AWW UR HE NP CU BI PI AIG o1t1o3t3 PPI CPI D I R AWW UR HE NP CU BI PI

F o1t1o3t3 PPI CPI D I R AWW UR HE NP CU BI PI G o1t1o3t3 PPI CPI D I R AWW UR HE NP CU BI PI

npawwheurF stat pgo pgt pgo pgt aigo aigt aigo aigt kfto kftt kfto kftt fo ft fo ft go gt go gt picpiF stat pgo pgt pgo pgt aigo aigt aigo aigt kfto kftt kfto kftt fo ft fo ft go gt go gt

birF stat cuppidiF stat pgo pgo pgt pgt pgo pgo pgt pgt aigo aigo aigt aigt aigo aigo aigt aigt kfto kfto kftt kftt kfto kfto kftt kftt fo fo ft ft fo fo ft ft go go gt gt go go gt gt

ppicpibircudinpawwheurpiF stat pgo pgt pgo pgt aigo aigt aigo aigt kfto kftt kfto kftt fo ft fo ft go gt go

Extensions Add more announcements Add more stocks Different regressions Different variable combinations See if response varies with sign –Β k = β 0 + β 1k,t S k,t if S<0 = β 2 + β 3k,t S k,t if S>0