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Stock Prices, the Business Cycle and Contingent Change: Evidence from Bloomberg News Market Wraps

Author

Listed:
  • Nicholas Mangee

    (Armstrong State University)

Abstract
This study provides evidence that stock market participants revise their forecasting strategies in response to macroeconomic news contingent on the state of the economy. This study utilizes Mangee (2011)'s novel dataset based on textual information contained in Bloomberg News's end-of-the-day stock market reports. A key finding is that macroeconomic news is reported to impact stock prices with a positive relation on some days and a negative one on others. The Bloomberg data show that, on average, economic considerations matter positively for stock prices during both expansions and contractions, but the degree to which macroeconomic news matters negatively rises dramatically during expansions. However, the Bloomberg data suggests that the connection between macroeconomic news and stock prices is much more unstable than what has been previously reported. In particular, the qualitative impact of economic considerations is not constant across expansionary periods. Furthermore, net market psychology associated with economic considerations is found to decline sharply leading up to and during sustained economic contractions. The results are consistent with theoretical accounts of asset price fluctuations which recognize that market participants imperfection of knowledge underpins the temporal indeterminacy of fundamentals-based relations.

Suggested Citation

  • Nicholas Mangee, 2014. "Stock Prices, the Business Cycle and Contingent Change: Evidence from Bloomberg News Market Wraps," Economics Bulletin, AccessEcon, vol. 34(4), pages 2165-2178.
    • Handle: RePEc:ebl:ecbull:eb-14-00791
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2014/Volume34/EB-14-V34-I4-P198.pdf
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    References listed on IDEAS

    as
    1. Paul C. Tetlock & Maytal Saar‐Tsechansky & Sofus Macskassy, 2008. "More Than Words: Quantifying Language to Measure Firms' Fundamentals," Journal of Finance, American Finance Association, vol. 63(3), pages 1437-1467, June.
    2. John H. Boyd & Jian Hu & Ravi Jagannathan, 2005. "The Stock Market's Reaction to Unemployment News: Why Bad News Is Usually Good for Stocks," Journal of Finance, American Finance Association, vol. 60(2), pages 649-672, April.
    3. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, vol. 73(2), pages 251-277, November.
    4. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, June.
    5. McQueen, Grant & Roley, V Vance, 1993. "Stock Prices, News, and Business Conditions," The Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 683-707.
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    Cited by:

    1. Frydman, Roman & Goldberg, Michael D. & Mangee, Nicholas, 2015. "Knightian uncertainty and stock-price movements: Why the REH present-value model failed empirically," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-50.

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    More about this item

    Keywords

    stock prices; business cycle; contingent change;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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