Stock Market Response to Unexpected Macroeconomic News: The Australian Evidence

August 1, 1992

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper provides empirical evidence on the relationship between unexpected changes in macroeconomic variables and Australian stock returns over the period 1980-1991. The results suggest that stock returns are positively correlated with any surprise news in the current account deficit, the exchange rate and growth rate of real GDP, and negatively correlated with surprise news about the inflation rate and interest rates. Stock returns are also positively correlated with the unexpected unemployment rate and negatively correlated to revisions in the expected unemployment rate. The results furthermore suggest that market portfolios can detect the impact of common economic shocks better than the portfolios of the two main subsectors of the market.

Subject: Asset prices, Balance of payments, Current account deficits, Financial markets, Inflation, Labor, Prices, Stock markets, Unemployment rate

Keywords: Arima procedure, Asset prices, bank bill, coefficient b, coefficient e, coefficients from survey, Current account deficits, deficit, expected inflation coefficient, Inflation, inflation coefficient, inflation rate, interest rate, market portfolio, procedures data, rate of return, share price, Stock markets, stock return, Unemployment rate, WP, yield coefficient

Pages:
26
Volume:
1992
DOI:
https://doi.org/10.5089/9781451964974.001
Issue:
061
Series:
Working Paper No. 1992/061
Stock No:
WPIEA0611992
ISBN:
9781451964974
ISSN:
1018-5941

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Notes

Empirical study on the relationship between unexpected changes in macroeconomic variables and Australian stock returns over the period 1980-1991.

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