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The reaction of stock market returns to anticipated unemployment

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dc.affiliation.dptoUC3M. Departamento de Economíaes
dc.contributor.authorGonzalo, Jesús
dc.contributor.authorTaamouti, Abderrahim
dc.contributor.editorUniversidad Carlos III de Madrid. Departamento de Economía
dc.date.accessioned2013-02-15T13:32:25Z
dc.date.available2013-02-15T13:32:25Z
dc.date.issued2012-07-06
dc.description.abstractWe empirically investigate the short-run impact of anticipated and unanticipated unemployment rates on stock prices. We particularly examine the nonlinearity in stock market's reaction to unemployment rate and study the effect at each individual point (quantile) of stock return distribution. Using nonparametric Granger causality and quantile regression based tests, we find that, contrary to the general findings in the literature, only anticipated unemployment rate has a strong impact on stock prices. Quantile regression analysis shows that the causal effects of anticipated unemployment rate on stock return are usually heterogeneous across quantiles. For quantile range (0.35, 0.80), an increase in the anticipated unemployment rate leads to an increase in the stock market price. For the other quantiles the impact is statistically insignificant. Thus, an increase in the anticipated unemployment rate is in general good news for stock prices. Finally, we offer a reasonable explanation of why unemployment rate should affect stock prices and how it affects them. Using Fisher and Phillips curve equations, we show that high unemployment rate is followed by monetary policy action of Federal Reserve (Fed). When unemployment rate is high, the Fed decreases the interest rate, which in turn increases the stock market prices.
dc.description.sponsorshipFinancial support from the Spanish Ministerio de Ciencia e Innovacion through grants ECO2010-19357 and Consolider-2010 and Bank of Spain (grant ER program) is gratefully acknowledged.
dc.format.mimetypeapplication/pdf
dc.identifier.issn2340-5031
dc.identifier.repecwe1237
dc.identifier.urihttps://hdl.handle.net/10016/16310
dc.identifier.uxxiDT/0000000833
dc.language.isoeng
dc.relation.ispartofseriesUC3M Working papers. Economics
dc.relation.ispartofseries12-37
dc.relation.isversionofhttp://hdl.handle.net/10016/14145
dc.rightsAtribución-NoComercial-SinDerivadas 3.0 España
dc.rights.accessRightsopen access
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.ecienciaEconomía
dc.subject.jelC14
dc.subject.jelC58
dc.subject.jelE44
dc.subject.jelG12
dc.subject.otherStock market returns
dc.subject.otheranticipated unemployment
dc.subject.otherunanticipated unemployment
dc.subject.othernonparametric tests
dc.subject.otherconditional independence
dc.subject.otherGranger causality in distribution
dc.subject.otherGranger causality in quantile
dc.subject.otherlocal bootstrap
dc.subject.othermonetary policy
dc.subject.otherFederal funds rate
dc.subject.othermoney supply
dc.titleThe reaction of stock market returns to anticipated unemployment
dc.typeworking paper*
dc.type.hasVersionSMUR*
dspace.entity.typePublication
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