Macro News and Micro News: Complements or Substitutes?

Hirshleifer, David and Sheng, Jinfei (2016): Macro News and Micro News: Complements or Substitutes?

Abstract

We study how the arrival of macro-news affects the stock market’s ability to incorporate the information in firm-level earnings announcements. Existing theories suggest that macro and firm-level earnings news are attention substitutes; macro-news announcements crowd out firm-level attention, causing less efficient processing of firm-level earnings announcements. We find the opposite: the sensitivity of announcement returns to earnings news is 17% stronger, and post-earnings announcement drift 71% weaker, on macro-news days. This suggests a complementary relationship between macro and micro news that is consistent with either investor attention or information transmission channels.

• Item Type: MPRA Paper
• Language: English
• Keywords: macro news, earnings announcements, market efficiency, investor attention, information transmission, complementary relationship
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading

References

Ball, Ray, and Philip Brown, 1968, An empirical evaluation of accounting numbers, Journal of Accounting Research 6, 159–178.

Bernard, Victor L., and Jacob K. Thomas, 1989, Post-earnings-announcement drift: Delayed price response or risk premium? Journal of Accounting Research 27, 1–36.

Bernard, Victor L., and Jacob K. Thomas, 1990, Evidence that stock prices do not fully reflect the implications of current earnings for future earnings, Journal of Accounting and Economics 13, 305-340.

Ben-Rephael, Azi, Zhi Da, and Ryan D. Israelsen, 2017, It depends on where you search: A comparison of institutional and retail attention, Review of Financial Studies 30, 3009-3047.

Bhushan, Ravi, 1989, Firm characteristics and analyst following. Journal of Accounting and Economics 11.2-3, 255-274.

Birru, Justin, 2018, Day of the week and the cross-section of returns, Journal of Financial Economics130, 182-214.

Boguth, Oliver and Duchin, Ran and Simutin, Mikhail, 2020, Dissecting Conglomerates, Journal of Finance, forthcoming.

Boyd, John H., Jian Hu, Ravi Jagannathan, 2005, The stock market’s reaction to unemployment news: Why bad news is usually good for stocks, Journal of Finance 60, 649-672.

Chan, Wesley S., 2003, Stock price reaction to news and no-news: drift and reversal after headlines, Journal of Financial Economics 70, 223-260.

Cieslak, Anna, Adair Morse, and Annette Vissing-Jogensen, 2019, Stock returns over the FOMC cycle, Journal of Finance 74, 2201-2248.

Corwin, Shane A., and Jay F. Coughenour, 2008, Limited attention and the allocation of effort in securities trading, Journal of Finance 63, 3031-3067.

Da, Zhi, Joseph Engelberg, and Pengjie Gao, 2011, In search of attention, Journal of Finance 66, 1461-1499.

DeHaan, E., Shevlin, T., and Thornock, J., 2015. Market (in) attention and the strategic scheduling and timing of earnings announcements. Journal of Accounting and Economics 60, 36-55.

DellaVigna, Stefano, and Joshua M. Pollet, 2009, Investor inattention and Friday earnings announcements, Journal of Finance 64, 709-749.

Drake, Michael S., Darren T. Roulstone, and Jacob R. Thornock, 2012, Investor information demand: Evidence from Google searches around earnings announcements, Journal of Accounting Research 50,1001-1040.

Engelberg, Joseph, R. David McLean, and Jeffrey Pontiff, 2018, Anomalies and news, Journal of Finance 73, 1971-2001.

Fama, Eugene F., 1970, Efficient capital markets: A review of theory and empirical work, Journal of Finance 25, 383-417.

Fama, Eugene F. and Kenneth R. French, 1993, Common risk factors in the returns on stocks and bonds, Journal of Financial Economics 33, 3-56.

Fisher, Adlai J., Charles Martineau, and Jinfei Sheng, 2021, Macroeconomic attention and announcement risk premia, Working paper, Available at SSRN 2703978.

Frazzini, Andrea, and Owen A. Lamont, 2007, The earnings announcement premium and trading volume, Working paper, Available at SSRN 986940.

Gilbert, Thomas, 2011, Information aggregation around macroeconomic announcements: Revisions matter, Journal of Financial Economics 101, 114-131.

Gilbert, Thomas, Chiara Scotti, Georg Strasser, and Clara Vega, 2017, Is the intrinsic value of macroeconomic news announcements related to their asset price impact? Journal of Monetary Economics 92, 78-95.

Goldstein, Itay, and Liyan Yang, 2015, Information diversity and complementarities in trading and information acquisition, Journal of Finance 70, 1723-1765.

Griffin, John M., Federico Nardari, and Rene M. Stulz, 2007, Do investors trade more when stocks have performed well? Evidence from 46 countries, Review of Financial Studies 20, 905-951.

Gulen, Huseyin, and Byoung-Hyoun Hwang, 2012, Daily stock market swings and investor reaction to firm-specific news, Working paper, Available at SSRN 1934873.

Hartzmark, Samuel M., and Kelly Shue, 2018, A tough act to follow: Contrast effects in financial markets, Journal of Finance 73, 1567-1613.

Hillert, Alexander, Heiko Jacobs, and Sebastian Müller, 2014, Media makes momentum. Review of Financial Studies 27, 3467-3501.

Hirshleifer, David, and Siew Hong Teoh, 2003, Limited attention, information disclosure, and financial reporting, Journal of Accounting and Economics 36, 337-386.

Hirshleifer, David, Sonya Lim, and Siew Hong Teoh, 2009, Driven to distraction: Extraneous events and underreaction to earnings news, Journal of Finance 64, 2289-2325.

Hirshleifer, David, Sonya Lim, and Siew Hong Teoh, 2011, Limited investor attention and stock market misreactions to accounting information, Review of Asset Pricing Studies 1, 35-73.

Johnson, Travis L., and Eric C. So, 2018, Time will tell: Information in the timing of scheduled earnings news, Journal of Financial and Quantitative Analysis 53, 2431-2464.

Kempf, Elisabeth, Alberto Manconi, and Oliver Spalt, 2017, Distracted shareholders and corporate actions, Review of Financial Studies 30, 1660–1695.

Liu, Hongqi and Peng, Lin and Tang, Yi, 2019, Retail Attention, Institutional Attention, Working paper, Baruch College.

Lucca, David O., and Emanuel Moench, 2015, The Pre‐FOMC announcement drift, Journal of Finance 70, 329-371.

Peng, Lin, and Wei Xiong, 2006, Investor attention, overconfidence and category learning, Journal of Financial Economics 80, 563-602.

Rosch, Dominik M., Avanidhar Subrahmanyam, and Mathijs A. van Dijk, M., 2017, The dynamics of market efficiency. Review of Financial Studies 30. 1151–1187.

Sadka, Ronnie, 2006, Momentum and post-earnings-announcement drift anomalies: The role of liquidity risk, Journal of Financial Economics 80, 309-349.

Savor, Pavel, and Mungo Wilson, 2013, How much do investors care about macroeconomic risk? Evidence from scheduled economic announcements, Journal of Financial and Quantitative Analysis 48, 343-375.

Savor, Pavel and Mungo Wilson, 2014, Asset pricing: A tale of two days, Journal of Financial Economics 113, 171-201.

Schmalz, Martin C., and Sergey Zhuk, 2018, Revealing downturns, Review of Financial Studies 32, 338-373.

Sims, Christopher A., 2003, Implications of rational inattention, Journal of Monetary Economics 50, 665–690.

Statman, Meir, Steven Thorley, and Keith Vorkink, 2006, Investor overconfidence and trading volume. Review of Financial Studies 19, 1531-1565.