Publication Type

Journal Article

Publication Date

8-2016

Abstract

This paper examines whether the negative association between aggregate earnings and returns is explained by the monetary policy news in aggregate earnings. Using Federal funds futures data to construct a measure of policy news, we find that aggregate earnings convey information about the Fed׳s policy actions. Additionally, the negative aggregate earnings-returns association is muted when we control for policy surprises. This result is more pronounced in periods with negative policy surprises, which tend to trigger a more significant market reaction. Taken together, these results suggest that aggregate earnings convey policy news and the market reacts negatively to policy surprises, which drives the negative aggregate earnings-returns association.

Keywords

Aggregate earnings, Monetary policy, Stock returns, Federal funds futures

Discipline

Accounting | Corporate Finance

Research Areas

Financial Intermediation and Information

Publication

Journal of Accounting and Economics

Volume

62

Issue

1

First Page

103

Last Page

120

ISSN

0165-4101

Identifier

10.1016/j.jacceco.2016.04.003

Publisher

Elsevier

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://doi.org/10.1016/j.jacceco.2016.04.003

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