Working Paper: NBER ID: w25016
Authors: Refet S. Gürkaynak; Bünyamin Kısacıkoglu; Jonathan H. Wright
Abstract: Macroeconomic news announcements are elaborate and multi-dimensional. We consider a framework in which jumps in asset prices around macroeconomic news and monetary policy announcements reflect both the response to observed surprises in headline numbers and latent factors, reflecting other details of the release. The details of the non headline news, for which there are no expectations surveys, are unobservable to the econometrician, but nonetheless elicit a market response. We estimate the model by the Kalman filter, which essentially combines OLS- and heteroskedasticity-based event study estimators in one step, showing that those methods are better thought of as complements rather than substitutes. The inclusion of a single latent factor greatly improves our ability to explain asset price movements around announcements.
Keywords: Event Studies; Macroeconomic News; Asset Prices; Kalman Filter; Heteroskedasticity
JEL Codes: E43; E52; E58; G12; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macroeconomic news announcements (E60) | asset price movements (G19) |
| latent factors (C39) | asset price movements (G19) |
| headline surprises (Y60) | asset price movements (G19) |
| latent factors (C39) | yield curve movements (E43) |
| headline surprises (Y60) | yield curve movements (E43) |