News relating to economic events and trends: central bank policy, unemployment numbers, GDP, foreign exchange rates. Also, general news about markets, trade, shipping, the state of manufacturing districts, notices of new mechanical improvements, and the progress of railways and public companies. Also, reports and accounts of popular movements advocating free trade.
The authors explore how the release of new economic indicators affects asset prices in stock, bond, and currency markets. They find that only a few announcements—nonfarm payrolls, the GDP advance release, and a private sector manufacturing report—generate price responses that are economically significant and measurably persistent. The strongest response is seen in bond yields, with stock prices having the weakest response. The effects appear to reflect a reassessment of investors’ views about the economy’s current state and future evolution.
Survey-based measures of economic news, such as forecasts from business and consumer surveys, are notoriously susceptible to measurement errors. As a result, studies that use these measures may understate the extent to which an indicator’s surprise is important for asset prices. To help address this problem, Rigobon and Sack developed a method for correcting estimates of asset price responses for the measurement errors. They compare the results of their methodology with those produced using a standard approach.
They find that both methods produce estimates of asset price responses that agree in sign with those generated by the standard OLS approach, but that the Rigobon-Sack estimates are typically larger. The difference stems from the fact that the Rigobon-Sack estimators remove the “information noise” that accumulates between the survey and the actual release of an indicator.