publication . Article . Preprint . Other literature type . Report . 2005

The Stock Market's Reaction to Unemployment News: Why Bad News Is Usually Good for Stocks

John Boyd; Ravi Jagannathan; Jian Hu;

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Published: 01 Apr 2005 Journal: SSRN Electronic Journal (eissn: 1556-5068,

Publisher: Elsevier BV

Summary

Abstract

We find that on average an announcement of rising unemployment is 'good news' for stocks during economic expansions and 'bad news' during economic contractions. Thus stock prices usually increase on news of rising unemployment, since the economy is usually in an expansion phase. We provide an explanation for this phenomenon. Unemployment news bundles two primitive types of information relevant for valuing stocks: information about future interest rates and future corporate earnings and dividends. A rise in unemployment typically signals a decline in interest rates, which is good news for stocks, as well as a decline in future corporate earnings and dividends, wh...

doi: 10.2139/ssrn.423982 , 10.1111/j.1540-6261.2005.00742.x , 10.3386/w8092 ,

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Subjects

free text keywords: jel:E3, jel:G1, Economics and Econometrics, Accounting, Finance, Stock (geology), Unemployment, media_common.quotation_subject, media_common, Risk premium, Growth stock, Economics, Interest rate, Earnings, Dividend, business.industry, business, Financial economics, Stock market, Monetary economics

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