Working Paper: NBER ID: w28687
Authors: Scott R. Baker; Nicholas Bloom; Steven J. Davis; Marco C. Sammon
Abstract: We examine next-day newspaper accounts of large daily jumps in 16 national stock markets to assess their proximate cause, clarity as to cause, and the geographic source of the market-moving news. Our sample of 6,200 market jumps yields several findings. First, policy news – mainly associated with monetary policy and government spending – triggers a greater share of upward than downward jumps in all countries. Second, the policy share of upward jumps is inversely related to stock market performance in the preceding three months. This pattern strengthens in the postwar period. Third, market volatility is much lower after jumps triggered by monetary policy news than after other jumps, unconditionally and conditional on past volatility and other controls. Fourth, greater clarity as to jump reason also foreshadows lower volatility. Clarity in this sense has trended upwards over the past century. Finally, and excluding U.S. jumps, leading newspapers attribute one-third of jumps in their own national stock markets to developments that originate in or relate to the United States. The U.S. role in this regard dwarfs that of Europe and China.
Keywords: stock market; jumps; policy news; monetary policy; market volatility
JEL Codes: E44; E58; E62; G12; G17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| policy news (J18) | upward stock market jumps (G10) |
| prior stock market performance (G17) | upward stock market jumps (G10) |
| monetary policy news (E52) | lower market volatility (G19) |
| clarity in journalistic explanations (Y90) | lower future volatility (G17) |
| U.S. economic and policy news (F59) | jumps in non-U.S. markets (G15) |