TY  - JOUR
AU  - Boyd,John H.
AU  - Jagannathan,Ravi
AU  - Hu,Jian
TI  - The Stock Market's Reaction to Unemployment News: Why Bad News is Usually Good for Stocks
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8092
PY  - 2001
Y2  - January 2001
UR  - http://www.nber.org/papers/w8092
L1  - http://www.nber.org/papers/w8092.pdf
N1  - Author contact info:
Ravi Jagannathan
Kellogg Graduate School of Management
Northwestern University
2001 Sheridan Road
Leverone/Anderson Complex
Evanston, IL 60208-2001
Tel: 847/491-8338
Fax: 847/491-5719
E-Mail: rjaganna@northwestern.edu
AB  - 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, which is bad news for stocks. The nature of the bundle -- and hence the relative importance of the two effects -- changes over time depending on the state of the economy. For stocks as a group, and in particular for cyclical stocks, information about interest rates dominates during expansions and information about future corporate earnings dominates during contractions.
ER  -