Responses of the Warsaw Stock Exchange to the U.S. macroeconomic data announcements

Gurgul, Henryk and Suliga, Milena and Wójtowicz, Tomasz (2012): Responses of the Warsaw Stock Exchange to the U.S. macroeconomic data announcements. Published in: Managerial Economics , Vol. 12, No. 1 (2012): pp. 41-60.

Abstract

The relationship between information flows and changes in asset prices is one of the main issues of financial economics. A fundamental assumption of the market efficiency hypothesis is that investors react to new information as it arrives. This reaction results in price changes that reflect investors' expectations concerning the level of risk and rates of return. The main aim of this paper is to investigate the effect of U.S. macroeconomic data announcements about inflation, industrial production and unemployment on the trading volume and prices of the most liquid stocks listed on the Warsaw Stock Exchange in the period 2004-2011. Using event study methodology we determine when and how forecasts and investor expectations regarding future market conditions changes under the influence of incoming macroeconomic data on the U.S. economy. This methodology also allows us to describe the strength, direction and length of the impact of announcements about these macroeconomic indicators.

• Item Type: MPRA Paper
• Language: English
• Keywords: event study, macroeconomic announcements, inflation, industrial production, unemployment, abnormal returns, trading volume
• Subjects: G - Financial Economics > G0 - General > G00 - General

References

[1] Ashley J., Stock prices and changes in earnings and dividends: some empirical results, “Journal of Political Economy” 1962, vol. 70(1), pp. 82–85.

[2] Ball R., Brown P., An empirical evaluation of accounting income numbers, “Journal of Accounting Research”, 1968, vol. 6, pp. 159–178.

[3] Barker C.A., Effective stock splits, “Harvard Business Review” 1956, vol. 34(1), pp. 101–106.

[4] Barker C.A., Stock splits in a bull market, “Harvard Business Review” 1957, vol. 35(3), pp. 72–79.

[5] Barker C.A., Evaluation of stock dividends, “Harvard Business Review” 1958, vol. 36(4), pp. 99–114.

[6] Boyd J.H., Hu J., Jagannathan R., The Stock Market’s Reaction to Unemployment News: Why Bad News Is Usually Good for Stocks, “Journal of Finance”, 2005, vol. 60(2), pp 649–672.

[7] Chen N.F., Roll R., Ross S., Economic forces and the stock market, “Journal of Business” 1986, vol. 59(3), pp. 83–403.

[8] Cichello M., Lamdin D.J., Event studies and the analysis of antitrust, “International Journal of the Economics of Business” 2006, vol. 13(2), pp. 229–245.

[9] Clarida R., Waldman D., Is bad news about inflation good news for the exchange rate?, Working Paper, 2007, Columbia University.

[10] Corrado C.J., A nonparametric test for abnormal security-price performance in event studies, “Journal of Financial Economics” 1989, vol. 23, pp. 385–395.

[11] Corrado C.J., Event studies: A methodology review, “Accounting and Finance” 2011, vol. 51, pp. 207–234.

[12] Corrado C.J., Zivney T.L. The specification and power of the sign test in event study hypothesis tests using daily stock returns, “Journal of Financial and Quantitative Analysis” 1992, vol. 27(3), pp. 465–478.

[13] Cutler D.M., Poterba J.M., Summers L.H., What Moves Stock Prices?, “Journal of Portfolio Management” 1989, vol. 15, pp. 4–12.

[14] Dolley J.C., Characteristics and procedure of common stock split-ups, “Harvard Business Review” 1933, vol. 11, pp. 316–326.

[15] Fama E.F., Stock returns, real Activity, inflation and money, “The American Economic Review” 1981, vol. 71(4), pp. 45–565.

[16] Fama E.F., Stock returns, expected returns and real activity, “Journal of Finance” 1990, vol. 45(4), pp. 1089–1108.

[17] Fama E.F., Fisher L., Jensen M.C., Roll R., The adjustments of stock prices to new information, “International Economic Review” 1969, vol. 10(1), pp. 1–21.

[18] Fama E.F., Schwert W.G., Asset returns and inflation, “Journal of Financial Economics” 1977, vol. 5, pp. 115–146.

[19] Fifield S., Power D., Sinclair C., A study of whether macroeconomic factors influence emerging market share returns, “Global Economy Quarterly” 2000, vol. 1(1), pp. 315–335.

[20] Geske R., Roll R., The fiscal and monetary linkage between stock returns and inflation, “Journal of Finance” 1983, vol. 38(1), pp. 1–33.

[21] Hondroyiannis G., Papapetrou E., 2001. Macroeconomic influences on the stock market, “Journal of Economics and Finance” 2001, vol. 25(1), pp. 33–49.

[22] Jaffe J., Mandelkar G., The Fisher effect for risky assets: An empirical investigation, “Journal of Finance” 1976, vol. 31, pp. 447–456.

[23] Johnston M.A., A review of the application of event studies in marketing, “Academy of Marketing Science Review” 2007, vol. 11(4), pp. 1–31.

[24] Kothari S.P., Warner J.B., Econometrics of event studies, in: Handbook of Corporate Finance: Empirical Corporate Finance, ed. B. Eckbo Espen, (Handbooks in Finance Series, Elsevier, North-Holland), 2005, pp. 3–36.

[25] Lamdin D.J., Implementing and interpreting event studies of regulatory changes, “Journal of Economics and Business” 2001, vol. 53, pp. 171–183.

[26] Li L., Hu Z.F., Responses of stock markets to macroeconomic announcements across economic states. IMF Working Paper 1998, No. 79.

[27] Lovatt D., Parikh A., Stock returns and economic activity: The UK case. “European Journal of Finance” 2000, vol. 6(3), pp. 280–297.

[28] MacKinlay A.C., Event studies in economics and finance, “Journal of Economic Literature” 1997, vol. 35(1), pp. 13–39.

[29] Maysami R.C., Koh T.S., A vector error correction model of the Singapore stock market, “International Review of Economics and Finance” 2000, vol. 9, pp. 79–96.

[30] Maysami R.C., Sim H.H., Macroeconomics variables and their relationship with stock returns: error correction evidence from Hong Kong and Singapore, “The Asian Economic Review” 2002, vol. 44(1), pp. 69–85.

[31] McQueen G., Roley V.V., Stock prices, news and business conditions. “Review of Financial Studies” 1993, vol. 6, pp. 683–707.

[32] McWilliams T.P., McWilliams V.B., Another look at theoretical and empirical issues in event study methodology, “Journal of Applied Business Research” 2000, vol. 16(3), pp. 1–12.

[33] McWilliams A., Siegel D., Event studies in management research: theoretical and empirical issues, “Academy of Management Journal” 1997, vol. 40, pp. 626–657.

[34] Miller M.H., Modigliani F., Dividend policy, growth and the valuation of shares, “Journal of Business” 1961, vol. 34, pp. 411–433.

[35] Miller M.H., Modigliani F., Corporate income taxes and the cost of capital: a correction, “American Economic Review” 1963, vol. 53(3), pp. 433–443.

[36] Muradoglu G., Metin K., Argae R., Is there a long-run relationship between stock returns and monetary variables: evidence from an emerging market. “Applied Financial Economics” 2001, vol. 11(6), pp. 641–649.

[37] Myers J.A., Bakay A., Influence of stock split-ups on market price, “Harvard Business Review” 1948, vol. 26, pp. 251–255.

[38] Nasseh A., Strauss J., Stock prices and domestic and international macroeconomic activity: A cointegration approach, “Quarterly Review of Economics and Finance” 2000, vol. 40(2), pp. 229–245.

[39] Nelson C.R., Inflation and rates of return on common stocks, “Journal of Finance” 1976, vol. 31(2), pp. 471–483.

[40] Schwert G.W., Measuring the effects of regulation: evidence from the capital markets, “Journal of Law and Economics” 1981, vol. 24, pp. 121–145.

[41] Serra A.P., Event study tests: a brief survey, Working Papers da FEP 117, 2002 (Universidade do Porto, Portugal).

[42] Sharpe W.F., Capital asset prices: a theory of equilibrium under conditions of risk, “Journal of Finance” 1964, vol. 19, pp. 425–442.

[43] Tainer E.M., Using economic indicators to improve investment analysis, John Wiley & Sons, Inc., New York, USA, 1993.