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Economic Indicators

The U.S. economy is a very complex system, with indicators therefore ambiguous and difficult to interpret. To what degree do macroeconomics and the stock market go hand-in-hand, if at all? Do investors/traders: (1) react to economic readings; (2) anticipate them; or, (3) just muddle along, mostly fooled by randomness? These blog entries address relationships between economic indicators and the stock market.

Bad News is Good News, Except When…

In the August 2004 update of their paper entitled “Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets”, Torben Andersen, Tim Bollerslev, Francis Diebold and Clara Vega investigate the real-time response of U.S., German and British stock, bond and foreign exchange markets to 25 types of U.S. macroeconomic news (such as GDP, PPI, CPI and unemployment rate). They employ actively traded futures as proxies for each of these markets. They measure the degree of surprise in macroeconomic announcements based on the survey-based expectations of market players. Using data from various starting points in the 1990s through the end of 2002, they find that: Keep Reading

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