Economic news is information about the state of the economy that affects financial markets. Economic news can trigger changes in the prices of financial assets and markets, such as bonds, stock market indices, interest rates, foreign exchange rates, and commodities. Economic news can also lead to changes in expectations about future economic outcomes, which can influence investor behavior.
Researchers often use surveys of market participants to infer the magnitude and sign of asset price responses to economic news. These survey-based measures of asset price reactions may contain error, however. They are subject to a range of errors, including a time lag between the surveys and the data release and the accumulation of additional information on the indicator between the surveys and the release.
To address these issues, we develop a methodology to estimate the impact of economic news by subtracting “true news” from the standard measure of asset price responses (the change in an asset or yield after an announcement minus the change expected at the moment of the survey). This approach enables us to clean estimates of asset price responses of the effects of true news from measurement errors and accumulated noise. We use this methodology to explore the immediate and full-day effects of a variety of economic indicators on key U.S. financial market indicators. The results show that only a few economic announcements generate asset price responses that are economically significant and measurably persistent across intraday intervals. Those announcements typically prompt a rise in bond yields and a decline in stock prices.