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Macro News and Micro News: Complements or Substitutes?

Hirshleifer, David and Sheng, Jinfei (2016): Macro News and Micro News: Complements or Substitutes? Forthcoming in: Journal of Financial Economics

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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.

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