1. 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 ) 2)

2. 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: Balduzzi et 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)

3. Specifics of This Work
Details in
Time period: January 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.

4. Statistics for SPY daily returns on the days of macroeconomic announcements
Economic Indicators
SPY (mean daily return=0.0006)
Announcements
# of data
Mean
corr(r, s)
p-value
Return/surprise, %
Model
daily return
+/+
+/-
p25 p5
Real Activity
Non-farm payroll 54
0.0001
0.39
0.75
76.0
44.8 1
Retail sales 55
0.0017
0.38
0.46
74.2
45.8
Industrial Production
0.0009
-0.13
0.84
46.2
62.1
Personal Income & Outlays
-0.06
0.19
50.0
52.2
Consumer Credit
0.0002
0.02
0.72
66.7
GDP
0.0029
-0.11
0.14
60.0
Consumption
New Home Sales
0.0027
0.13
0.16
59.3
60.7
Investment
Durable Goods Orders
0.0004
0.12
0.88
61.5
51.7
Factory Orders 56
-0.20
0.48
57.7
46.7
Government Purchases
Treasury budget 52
0.0022
-0.14
0.30
59.4
63.2
Net Exports
International Trade Balance
0.0031
0.24
75.0
51.9
Prices
Producer Price Index
0.0011
0.71
67.7
Consumer Price Index
-0.16
0.76
52.9
57.1
Forward-Looking
Consumer Confidence Index
0.04
65.4
56.7
ISM manufacturing report
0.47
72.7
Housing Starts
0.0012
0.29
0.69
64.0
43.3
Index of Leading Indicators
-0.09
0.03
48.5
59.1
Jobless claims
239
0.0010
0.56
55.9
63.6

5. Daily SPY Returns in

6. The Model ARMA(p, q) + GARCH(m, n) RUGARCH software (Ghalanos, 2013)
Parsimonious model: 1st minimum of Akaike criterion => m=2 and n=p=q=1.
ri(t) = μi + ai,1 ri(t-1) +bi,1 εi(t-1) + 𝑘=1 𝑁 𝑑 𝑖𝑘 𝐷 𝑘 𝑡 + 𝑘=1 𝑁 𝑠 𝑖𝑘 𝑆 𝑘 (𝑡) + 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
Ak and Ek from Haver Analytics

7. 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

8. 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)

9. Days with Announcements
Results IV
Performance of announcement-based trading strategies: SPY
Effective Sharpe ratio: Sh = R/(𝜎 𝑇 );
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.
SPY
B&H
Days with Announcements
Model #18
Model p25
Model p5 T
1153
766
495
214
Mean daily return
0.0006
0.0008
0.0013
0.0017
p-value na
0.71
0.09
0.16 σ
0.013
0.012
Compound return
0.69
0.86
0.92
0.44
Sharpe ratio
1.63
2.59
3.33
2.37

10. Days with Announcements
Results V
Performance of announcement-based trading strategies: XLI
XLI
B&H
Days with Announcements
Model #18
Model p25
Model p5 T
1153
766
575
466
Mean daily return
0.0006
0.0009
0.0015
0.0016
p-value na
0.69
0.05
0.09 σ
0.015
0.016
Compound return
1.04
1.38
1.08
Sharpe ratio
1.36
2.51
3.79
3.17

11. Days with Announcements
Results VI
Performance of announcement-based trading strategies: XLY
XLY
B&H
Days with Announcements
Model #18
Model p25
Model p5 T
1153
766
558
436
Mean daily return
0.0009
0.0012
0.0017
p-value na
0.61
0.06
0.13 σ
0.014
0.015
Compound return
1.04
1.52
1.59
1.14
Sharpe ratio
2.18
3.92
4.81
3.64

12. Days with Announcements
Results VII
Performance of announcement-based trading strategies: XLF
XLF
B&H
Days with Announcements
Model #18
Model p25
Model p5 T
1153
766
575
397
Mean daily return
0.0005
0.0009
0.0012
0.0016
p-value na
0.63
0.30
0.24 σ
0.023
0.021
0.022
Compound return
0.58
0.99
0.70
0.88
Sharpe ratio
0.74
1.56
1.36
2.01

14. Q & A