Economic news triggers adjustments in the prices of financial assets. It may rock some assets and shrug off others. For example, a surprisingly weak jobs report might provoke investors to seek the safety of government bonds or rethink the president’s sweeping tariff policy. But, the magnitude of the changes and whether they are measurably persistent over intraday intervals remain unclear.
The authors explore these questions using data on asset price responses to a range of economic news, including the nonfarm payroll numbers and GDP advance releases, as well as a private sector manufacturing report and a foreign exchange release. They find that only a small set of indicators elicits price responses that are economically significant and measurably persistent through the day, with bond yields showing the strongest response and stock prices responding least.
While earlier studies of announcement effects typically defined “news” by reference to the predictions of an empirical forecasting model, this approach leaves open the possibility that the resulting measure is contaminated by the information accumulated between the survey and the actual release of the indicator, thereby underestimating the impact per unit of true news. To avoid this problem, the authors develop a simple method to estimate asset price responses that cleans away measurement errors and informational noise.
They compare their estimates of the asset price responses to those produced by standard OLS methods, finding that the Rigobon-Sack estimated responses are typically larger than their standard counterparts.
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