Missing events in event studies: Identifying the effects of partially measured news surprises
Date
2020Source Title
American Economic Review
Print ISSN
0002-8282
Publisher
American Economic Association
Volume
110
Issue
12
Pages
3871 - 3912
Language
English
Type
ArticleItem Usage Stats
123
views
views
325
downloads
downloads
Abstract
Macroeconomic news announcements are elaborate and multi-dimensional. We consider a framework in which jumps in asset prices around macroeconomic news and monetary policy announcements reflect both the response to observed surprises in headline numbers and latent factors, reflecting other details of the release. The details of the non-headline news, for which there are no expectations surveys, are unobservable to the econometrician, but nonetheless elicit a market response. We estimate the model by the Kalman filter, which essentially combines OLS- and heteroscedasticity-based event study estimators in one step, showing that those methods are better thought of as complements rather than substitutes. The inclusion of a single latent factor greatly improves our ability to explain asset price movements around announcements.