Publication Type
Journal Article
Version
Preprint
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
Citation
GALLAO, Lindsey A.; HANN, Rebecca N.; and Congcong LI.
Aggregate earnings surprises, monetary policy, and stock returns. (2016). Journal of Accounting and Economics. 62, (1), 103-120.
Available at: https://ink.library.smu.edu.sg/soa_research/1513
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
http://doi.org/10.1016/j.jacceco.2016.04.003