Expectation Dispersion, Uncertainty, and the Reaction to News

Born B, Dovern J, Enders Z (2020)

Publication Language: English

Publication Type: Other publication type

Publication year: 2020

Publisher: Munich Society for the Promotion of Economic Research - CESifo GmbH

Series: CESifo Working Papers

City/Town: München

Journal Issue: 8801

Abstract

Releases of key macroeconomic indicators are closely watched by financial markets. We investigate the role of expectation dispersion and economic uncertainty for the stock-market reaction to indicator releases. We find that the strength of the financial market response to news decreases with the preceding dispersion in expectations about the indicator value. Uncertainty, in contrast, increases the response. We rationalize our findings in a model of imperfect information. In the model, dispersion results from a perceived weak link between macroeconomic indicators and fundamentals that reduces the informational content of indicators, while higher fundamental uncertainty makes this informational content more valuable.

Authors with CRIS profile

Jonas Dovern Lehrstuhl für Statistik und Ökonometrie

Related research project(s)

Heterogenität makroökonomischer Erwartungen: Welche Rolle spielen individuelle historische Erfahrungen, das örtliche Umfeld und sozioökonomische Faktoren? July 1, 2019 - Dec. 31, 2022

Involved external institutions

Ruprecht-Karls-Universität Heidelberg DE Germany (DE)

How to cite

APA:

Born, B., Dovern, J., & Enders, Z. (2020). Expectation Dispersion, Uncertainty, and the Reaction to News. München: Munich Society for the Promotion of Economic Research - CESifo GmbH.

MLA:

Born, Benjamin, Jonas Dovern, and Zeno Enders. Expectation Dispersion, Uncertainty, and the Reaction to News. München: Munich Society for the Promotion of Economic Research - CESifo GmbH, 2020.

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