Stock Market Response to Unexpected Macroeconomic News

This paper provides empirical evidence on the relationship between unexpected changes in macroeconomic variables and Australian stock returns over the period 1980-1991. The results suggest that stock returns are positively correlated with any surprise news in the current account deficit, the exchange rate and growth rate of real GDP, and negatively correlated with surprise news about the inflation rate and interest rates. Stock returns are also positively correlated with the unexpected unemployment rate and negatively correlated to revisions in the expected unemployment rate. The results furthermore suggest that market portfolios can detect the impact of common economic shocks better than the portfolios of the two main subsectors of the market.Stock markets;Economic models;inflation, survey, inflation rate, inflation rates, correlation, statistics, real variables, rational expectations, foreign exchange, descriptive statistics, inflationary expectations, money supply, surveys, change in inflation, dummy variable, dummy variables, equations, equation, explanatory power, standard deviation, inflation data, time series, independent variables, statistical significance, lower inflation, samples, inflation forecasts, actual inflation, relative price variability, real rates, real output