Expectation dispersion, uncertainty, and the reaction to news

Born B, Dovern J, Enders Z (2023)

Publication Type: Journal article, Original article

Publication year: 2023

Journal

European Economic Review Elsevier

Book Volume: 154

Pages Range: 104440

DOI: 10.1016/j.euroecorev.2023.104440

Abstract

Key macroeconomic indicator releases are closely monitored by financial markets. We examine the impact of expectation dispersion and economic uncertainty on the stock market’s reaction to these indicators. We find that the strength of the financial market response to news decreases with the preceding dispersion in expectations about the indicator value. Higher 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 fundamental uncertainty makes their 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. (2023). Expectation dispersion, uncertainty, and the reaction to news. European Economic Review, 154, 104440. https://dx.doi.org/10.1016/j.euroecorev.2023.104440

MLA:

Born, Benjamin, Jonas Dovern, and Zeno Enders. "Expectation dispersion, uncertainty, and the reaction to news." European Economic Review 154 (2023): 104440.

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