Macroeconomic announcements and stock returns in US portfolios formed on operating profitability and investment

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The authors explore the reaction of US stock portfolio returns to macroeconomic announcements spanning the period from April 1998 to May 2017. Using daily returns of 25 portfolios formed on operating profitability and investment, the authors investigate the extent to which potential asymmetries permeate the stock portfolios following macroeconomic announcements. The three methodological approaches utilized in this study suggest that the ISM non-manufacturing index, employees on non-farm payrolls, retail sales, personal consumption expenditure and initial jobless claims have a significant impact on portfolio returns. Also, portfolios consisting of companies with higher operating profitability and investment level are found to be less responsive to announcements. As the particular area has received little currency over the years, this contribution is of great significance, because it provides insights into the reaction of returns in value-weighted portfolios to announcements on certain macro-indicators. At the same time, the study informs portfolio managers of the implications of macroeconomic news, which drive economic expectations and can reverberate through the expected returns in US stock portfolios.

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    • Table 1. Macroeconomic variables and summary statistics for announcements
    • Table 2. The reaction of portfolios to macroeconomic announcements (OLS Newey West standard errors)
    • Table 3. The reaction of portfolios to macroeconomic announcement (SUR)
    • Table 4. The reaction of portfolios to macroeconomic announcements (MM weighted least squares)