Caught by surprise: how markets respond to macroeconomic news
SeriesResearch Master Defense
LocationErasmus University, E-Building, Room EB-12
Date and time
September 26, 2019
08:30 - 09:30
We propose a new method to measure the current state of economic surprises across different economic releases. Empirically, economic surprises related to macroeconomic growth consistently and robustly predict short-term returns in risky asset classes (equities, credits, commodities), while it predicts bond returns over a yearly forecast horizon. These effects are attributable to short-run momentum in economic surprises. A simple investment strategy using growth surprises outperforms equity markets, providing annualized alpha’s between 2.74% and 4.22%.