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The effect of US macroeconomic news announcements on the Canadian stock market: Evidence using high-frequency data
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The effect of US macroeconomic news announcements on the Canadian stock market: Evidence using high-frequency data Syed Mujahid Hussain , Walid Ben Omrane PII: DOI: Reference:
S1544-6123(19)30148-5 https://doi.org/10.1016/j.frl.2020.101450 FRL 101450
To appear in:
Finance Research Letters
Received date: Revised date: Accepted date:
14 February 2019 23 January 2020 28 January 2020
Please cite this article as: Syed Mujahid Hussain , Walid Ben Omrane , The effect of US macroeconomic news announcements on the Canadian stock market: Evidence using high-frequency data, Finance Research Letters (2020), doi: https://doi.org/10.1016/j.frl.2020.101450
This is a PDF file of an article that has undergone enhancements after acceptance, such as the addition of a cover page and metadata, and formatting for readability, but it is not yet the definitive version of record. This version will undergo additional copyediting, typesetting and review before it is published in its final form, but we are providing this version to give early visibility of the article. Please note that, during the production process, errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain. © 2020 Published by Elsevier Inc.
Highlights
US news show significant effects on Canadian stock return and volatility. Stock returns show slightly more responses during US recession. US macroeconomic news trigger stock market linkages between US and Canada. High frequency data is important in analyzing news announcement effects.
1
The effect of US macroeconomic news announcements on the Canadian stock market: Evidence using high-frequency data Syed Mujahid Hussain*, Ψ and Walid Ben Omrane** *Department of Economics and Finance, College of Economics and Political Science, Sultan Qaboos University, Al-Khoudh, Muscat – Sultanate of Oman. **Department of Finance, Operations and Information Systems, Goodman School of Business - Brock University, Ontario, Canada.
Abstract We analyze the impact of US macroeconomic news announcements on the Canadian benchmark stock index return and volatility using high-frequency 5-min data. Our findings reveal that several US news releases exert a statistically significant influence on the Canadian stock market return and volatility. Moreover, we show that during the 2008 US recession, slightly more US news announcements exhibit significant impacts on the Canadian equity returns, with relatively pronounced effects. Overall, our results support previous findings by suggesting that US macroeconomic fundamentals form a linkage between Canadian and US financial markets.
Keywords: Intraday volatility; Macroeconomic news announcements; Financial crisis, Highfrequency data.
JEL classification: G14, G15
Ψ
Corresponding author.
2
1. Introduction Canada and the United States (US) share a long history of trade and financial linkages. For instance, Canada was the 2nd largest trading partner of the US with $581 billion in total goods trade during 2017.1 Moreover, a large number of Canadian companies are cross-listed on US exchanges and a significant proportion of these firms approach US capital markets to raise funds. 2 Such trade and financial linkages imply that the Canadian stock market would be exposed to the changes in the US financial and economic landscape. The objective of this paper is to analyze the impact of US macroeconomic news announcements on the Canadian benchmark stock index (i.e., S&P/TSX composite index) using high-frequency data. There are just a few earlier papers that have analyzed the impact of US macro news on Canadian financial markets. For example, Hayo and Neuenkirch (2012) study the effects of Canadian and US central bank communication and macroeconomic news on Canadian bond, stock, and foreign exchange market returns and volatility using daily closing prices. The authors find that Canadian central bank communication is more relevant than its US counterpart, however, US macro news dominate the response in comparison with those of the Canadian news. Gravelle and Moessner (2001) measure the reactions of Canadian and US interest rates to macroeconomic announcements released in Canada and the United States. Their results indicate that Canadian interest rates react very little to Canadian macroeconomic news but are significantly affected by US macroeconomic news releases. Overall, these findings show the dominant influence of US fundamentals on the Canadian financial markets. However, no study has so far specifically analyzed the impact of US macroeconomic releases on the intraday return and volatility of the Canadian equity index.
1
https://ustr.gov/countries-regions/americas/canada 165 Canadian firms were listed in US exchanges as of Dec 23, 2018. Source: http://topforeignstocks.com/foreign-adrs-list/the-complete-list-of-canada-stocks-trading-on-us-markets 2
3
This study aims to fill this gap and contributes to the existing literature in the following two ways: First, to the best of our knowledge, this is the first study that investigates the impact of US macroeconomic news releases on the Canadian equity index return and volatility using 5min high-frequency data. High-frequency data allows us to measure the precise effect of macro announcements while controlling for endogeneity and influence of external factors that may otherwise not be controlled for in the case of low-frequency data (Kearns and Manners, 2006; Hussain, 2011). Moreover, given the rapid rise of high-frequency trading in the last decade or so - understanding the precise effect of foreign macroeconomic announcements on equity markets is ever more important for traders and investors to formulate effective trading and hedging strategies and making portfolio allocation decisions. Second, we contribute to the literature by investigating whether the impact of US news announcements on Canadian stock index return and volatility is sensitive toward economic business cycles such as expansion and recession and more particularly the US financial crisis. Our main findings can be summarized as follows: Firstly, several US macroeconomic announcements are found to exert a statistically significant influence on the Canadian index return and volatility. Secondly, the Canadian equity market return responded more strongly to US macroeconomic news announcements during the 2008 US recession in comparison with expansion. Overall, these findings suggest that both countries are linked through economic fundamentals. The rest of the paper is organized as follows: Section 2 provides an overview of the data. The methodology is outlined in section 3 and the empirical results are discussed in section 4. Section 5 concludes the paper with a summary.
2. Data 2.1 Stock market data 4
We obtain the intraday 5-min price data for Canadian benchmark stock index (i.e., S&P/TSX composite index) from Olsen data. The data covers the period January 5th, 2007 through December 31st, 2013. Descriptive statistics of 5-min intraday returns are provided in Table 1. The average return is very small and close to zero. However, the highest and lowest return values are 14.76% and -6.23%, respectively. These extreme values would be considered as evidence of high volatility in the Canadian equity market.3
2.2. US News announcement Our news data on the US announcements comprise 18 macroeconomic news releases including the Federal Open Market Committee (FOMC) monetary policy decisions.4 These announcements are scheduled in advance and released on pre-specified dates and times. The list of those announcements along with the announcement time, their frequency and type is provided in Appendix A. We follow Balduzzi, Elton, and Green (2001) in calculating the standardized news surprise which is calculated by dividing the difference between the actual and expected news announcement figures (
) by the standard deviation of the same
difference. More formally, it can be written as: =
̂
(1)
3. Methodology Building on the methodology proposed by Andersen et al. (2003) and adopted by Harju and Hussain (2011), Hussain (2011), and recently Ben Omrane and Savaser (2017) among others, we estimate the following return and volatility equations to investigate the impact of US
3
Both maximum and minimum return values are observed during US financial crisis. This reflects heightened volatility during such a recession period. We thank an anonymous referee for pointing this out. 4 The selection of the macroeconomic indicator is based on the prior literature, such as, Harju and Hussain (2011) and Hussain (2011).
5
macroeconomic and monetary policy surprises on the Canadian stock index return and volatility.
3.1. Return response model The return equation is given as follows: ( )
( )
∑
∑
The left-hand side variable,
(2) is the 5-min percentage return for the Canadian benchmark
equity index. The right-hand side of equation (2) includes polynomial lag operators; ( ) and ( ) corresponding to AR(p) and MA(q) processes, respectively, and the standardized surprise,
relates to news surprise k released at time t (k=1….18).5 A significant
coefficient would imply that US macroeconomic announcement k released at time t has a significant impact on the Canadian stock market return.
3.2. Volatility response model The volatility equation consists of regressing the absolute value of the estimated residual term from equation (2) on macroeconomic news surprises and intraday seasonality control variables: ˆt =a(L) ε t +b(L)μ t +ψ
ˆ d(t) ζ N
X x2πt x2πt M βk,j Sk,t-j + δx cos +jx sin + γm Dm,t +μ t k=1 j=0 N N m=1 x=1 K
+
J
(3) The absolute residual term from return equation (2) is used as a proxy of intraday 5-min volatility. The right-hand side of the equation (3) includes the polynomial lag operators, ( )and ( ); the average daily volatility, ̂
( )
√ ; the standardized surprise,
; the
5
In order to check for potential existence of multicollinearity between news variables, we have calculated the cross-correlations for all considered macroeconomic surprises. The correlation table shows very low and close to zero correlation values, indicating the absence of multicollinearity. We don’t report the correlation table for the sake of space, but it can be provided upon request.
6
Flexible Fourier Form to control for variables,
intraday volatility patterns; and a set of dummy
to capture the market opening and closing times. N is the number of intraday
intervals within a trading day. In order to ensure strict periodicity, we construct a continuous return series by interpolating the missing observations. 6
4. Empirical Results The estimation results from equations (2) and (3) are reported in Table 2. Panel A shows that six US macroeconomic announcements have statistically significant effects on the Canadian stock market return.7 It also shows that positive news surprises related to forward-looking US macro indicators such as consumer confidence index, leading index, ISM manufacturing, and Philadelphia Fed Business Outlook trigger an increase in the Canadian index return. Other investment and consumption measures, such as existing home sales and new home sales also have positive significant effects on returns. Furthermore, US Consumer Confidence Index generates the largest return response in the Canadian stock market. One standard deviation increase in the US Consumer Confidence Index triggers an increase in the 5-min Canadian stock index return by approximately 0.15%. This finding is similar to Hussain et al. (2019) results showing that US Consumer Confidence Index has the most sizeable impact (0.165%) on the intraday returns in the Brazilian equity market. Our results are also consistent with Hayo and Neuenkirch (2012) who found that five different categories of US macro news are statistically significant in explaining the Canadian stock returns, while US monetary policy news is found to be relatively unimportant.8
6
The number of missing observations is 849 (0.62%). We used linear interpolation to generate these missing data. 7 The statistical significance is reported at 1% significance level. 8 Hayo and Neuenkirch (2012) consider both US and Canadian macroeconomic news announcements (eleven US and twelve Canadian news). Compared to our study, their empirical framework involves a larger dataset and a different time period (1998-2006) with no specific business cycles.
7
Regarding index volatility response to news, Panel B of Table 2 reports the contemporaneous volatility response coefficients estimated in equation (3). Overall, four US macroeconomic announcements trigger significant and positive volatility responses. These news surprises include Consumer Confidence Index, Existing Home Sales, FOMC rate decision, and Philadelphia Fed Business Outlook. It is worth noting that FOMC rate decision, which has no significant effect on index returns, shows the highest significant impact on the index volatility compared to the other three news. This implies that higher than expected rise in US interest rates will cause volatility to increase in the Canadian stock index. This finding is also consistent with Hussain et al. (2019) who show that US interest rate announcements trigger the highest volatility response in the Brazilian and Mexican equity markets. The nonsignificance of other news indicators might provide evidence that the Canadian equity market volatility is sensitive to only some specific US macroeconomic news releases. 9 Overall, our results are also generally in line with Singh et al. (2013) findings who use daily frequency data and report significant response of the Canadian stock index and volatility to US macroeconomic news announcements.10
4.1. US news announcement effects during the global financial crisis In this section, we test whether the effect of US macroeconomic news announcements on the Canadian equity market return and volatility is sensitive to economic business cycles such as US financial crisis. We then re-estimate equations (2) and (3) where we cross the standardized news surprise, . UScrisis
dummy
with two dichotomous variables,
and
is a dummy variable that takes the value 1 during the US
financial crisis and zero otherwise.
is also a dummy variable but takes the
9
Hayo and Neuenkirch (2012) also found the Canadian stock index volatility to have a relatively subdued response to the US macroeconomic news announcements compared to the index returns. 10 Their response is, however, weaker compared to ours as they find that Canadian stock returns and volatilities are affected by three and two US macroeconomic indicators, respectively, out of the 14 selected US macro indicators in their sample – which might be due to the use of daily data.
8
value 1 outside the US crisis and zero otherwise. We follow the National Bureau of Economic Research (NBER) to define the US crisis period, which starts in January 2008 and ends in June 2009. The estimation results related to return and volatility with respect to the crisis and non-crisis periods are reported in Panel A and B of Table 3, respectively. The return response to news shows that eight US macroeconomic news surprises significantly affect the Canadian equity market return during the US recession, while only 5 US macroeconomic news releases turned out to show significant effect outside the crisis period. Interestingly, US monetary policy announcements, more specifically FOMC rate decisions, exhibit a significant impact on the Canadian market return during the crisis while such an effect was muted in the case where we consider the whole sample period without distinguishing the crisis period (see Table 2). Another interesting result is related to US housing and construction-related indicators (i.e., Construction Spending, Existing Home Sales MoM and New Home Sales) that show a significant effect on the index return. This is plausible as US subprime crisis was mainly triggered by mortgage-related issues. This result is in line with Ben Omrane and Savaser (2016) who find evidence of a context-specific shift in investor reaction to macroeconomic news during the US financial crisis. Moreover, all the significant coefficients have positive signs implying that positive US macroeconomic surprises generate an appreciation in Canadian stock prices irrespective of crisis or no crisis period. However, of the 5 common US macroeconomic indicators that are found to be significant in both sub-periods, the coefficient values are relatively higher during the US crisis compared to the non-crisis period. This result shows that Canadian equity market returns exhibit a more pronounced response toward US macroeconomic news surprises during the US subprime crisis. Focusing on the Canadian equity market volatility response to news around US crisis period, we find no clear pattern for such a response compared to return responses. However, the
9
FOMC rate decision, which is found to have a significant impact across both periods displays a higher impact during the crisis (0.097) compared to the non-crisis period (0.064). This implies that US monetary policy decisions amplify uncertainty in the Canadian equity market during the US financial crisis. 11 Overall, these results show that Canadian aggregate equity market returns are generally more responsive to US macroeconomic news announcements than volatility, especially during the US financial crisis.
5. Conclusion In this paper, we investigate the intraday Canadian equity market return and volatility responses to US macroeconomic news announcements using high-frequency data. We also explore the sensitivity of such effects during and around the US financial crisis. Our findings suggest that several US macroeconomic news surprises exert significant and immediate impact on the Canadian index return and volatility. We also find that during 2008 US recession, slightly more US news announcements exhibit significant impacts on the Canadian equity returns, with relatively pronounced effects. Overall, our results based on high-frequency data support the findings in the extant literature, mostly based on daily frequency, showing that US macroeconomic fundamentals form a linkage between Canadian and US financial markets. These findings imply reduced portfolio diversification opportunities for investors planning to invest in the US and Canada due to such linkages between the two countries particularly during US recessions.
11
We have also computed average 5-minute volatility at 10:05 am and 2:20 pm in order to analyze the sensitivity of the Canadian market volatility to the aggregated US news announcements released at 10:00 am (macroeconomic news release time) and 2:15 pm (FOMC rate decision release time), respectively. Average volatility has been computed within two sub periods; the first involves the US financial crisis only (Jan - Oct 2008) without any overlap with the Canadian recession. The second sub period includes the rest of the sample period. Next, we have performed a two-tailed mean equality test to compare volatility means calculated during the two sub periods. The mean test result shows that US announcements trigger higher volatility during US recession compared to the rest of the sample period. The test results are available upon request.
10
Syed Mujahid Hussain: Conceptualization, Methodology, Software, Writing- Original draft preparation Walid Ben-Omrane: Conceptualization, Data curation, WritingReviewing and Editing.
References Andersen, T. G., Bollerslev, T., Diebold, F. X., and Vega, C., 2003. Micro effects of macro announcements: Real-time price discovery in foreign exchange. American Economic Review, 93, 38–62. Balduzzi, P., Elton, E. J., Green, T. C., 2001. Economic news and bond prices: Evidence from the US treasury market. Journal of Financial and Quantitative Analysis, 36, 523–43. Ben Omrane, W., Savaser, T., 2016. The sign switch effect of macroeconomic news in foreign exchange markets. Journal of International Financial markets, Institutions and Money, 45, 96-114. Ben Omrane, W., Savaser, T., 2017. Exchange rate volatility response to macroeconomic news during the global financial crisis. International Review of Financial Analysis, 52, 130143. Gravelle, T., Moessner. R., 2001. Reactions of Canadian interest rates to macroeconomic announcements: Implications for monetary policy transparency. Bank of Canada Working Paper, 2001-5. Harju, K., Hussain, S. M., 2011. Intraday seasonalities and macroeconomic news announcements. European Financial Management, 17, 367-390. Hayo, B., Neuenkirch, M., 2012. Domestic or US news: what drives Canadian financial markets? Economic Inquiry, 50(3), 690–706. Hussain, S. M., 2011. Simultaneous monetary policy announcements and international stock markets response: An intraday analysis. Journal of Banking and Finance, 35, 752–764.
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Hussain, S.M., Ben Omrane, W., Al-Yahyaee, K. (2019). US macroeconomic news effects around the US and European financial crises: Evidence from Brazilian and Mexican equity indices. Global Finance Journal. Forthcoming Kearns, J., Manners, P., 2006. The Impact of monetary policy on the exchange rate: A study using intraday data. International Journal of Central Banking, 2(4), 157 – 183. Singh, M., Nejadmalayeri, A., and Lucey, B. (2013). Do U.S. macroeconomic surprises influence equity returns? An exploratory analysis of developed economies. The Quarterly Review of Economics and Finance, 53, 476–485.
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Appendix A Announcement 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Time
Business Inventories Consumer Confidence Index Consumer Credit Chicago Purchasing Manager Construction Spending MoM Existing Home Sales_MoM Economic Optimism Factory Orders FOMC Rate Decision ISM Manufacturing Leading Index Monthly Budget Statement New Home Sales Philadelphia Fed Business Outlook Pending Home Sales MoM Richmond Fed Manufacturing Index Univ. of Michigan Confidence Wholesale Inventories MoM
Frequency
Announcement Type
10:00 Monthly Investment 10:00 Monthly Forward looking 15:00 Monthly Real activity 9:45 Monthly Forward looking 10:00 Monthly Investment 10:00 Monthly Consumption 10:00 Monthly Forward looking 10:00 Monthly Investment 14:15 8 per year Monetary Policy 10:00 Monthly Forward looking 10:00 Monthly Forward looking 14:00 Monthly Government purchases 10:00 Monthly Consumption 10:00 Monthly Forward looking 10:00 Monthly Consumption 10:00 Monthly Real activity 09:55 Monthly Forward looking 10:00 Monthly Real activity Total Percentage of announcements on each of the week days
Mon
Tue
Wed
Thu
Fri
10 0 18 10 31 19 0 10 0 31 9 9 9 0 17 0 0 1 174 12%
20 81 12 12 16 14 76 17 15 16 1 12 13 0 21 82 0 21 429 30%
18 0 12 15 14 19 1 19 39 13 5 25 32 0 16 2 3 19 252 17%
14 3 13 14 11 23 0 22 2 12 62 19 17 84 25 0 2 15 338 24%
22 0 29 33 12 9 0 16 0 12 7 14 13 0 3 0 41 28 239 17%
Total obs. 84 84 84 84 84 84 77 84 56 84 84 79 84 84 82 84 46 84 1432 100%
Notes: This table reports US macroeconomic news announcements times in Eastern Standard Time (EST), frequency of the announcement, announcement type and the number of announcements for each indicator per day of the week.
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Table 1 Descriptive statistics for intraday 5-minute Canadian Index returns (S&P/TSX composite index) Mean Maximum Minimum
Standard Deviation Skewness Kurtosis AC return (1) q-Stat AC absolute return (1) q-Stat Observations Percentage of zero returns
0.0001 14.7643 -6.2353 0.1414 7.8324 1045.8 0.0140 24.9 0.2550 8780.9 135486 0.95
Notes: This table presents the summary statistics for Canadian equity index intraday returns.
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Table 2 Panel A: Return Response bk t-stat News Type 0.0056 0.3574 Investment 0.1471*** 9.3439 Forward looking 0.0146 0.9400 Forward looking 0.0211 1.4019 Forward-looking 0.0349 2.1332 Investment 0.0884*** 5.4847 Consumption 0.0114 0.7072 Forward-looking 0.0125 0.7966 Investment 0.0160 0.8402 Monetary policy 0.0807*** 4.6665 Forward looking 0.0580*** 3.7417 Forward looking 0.0132 0.7875 Government purchases 0.0625*** 4.0467 Consumption 0.1017*** 6.5358 Forward-looking 0.0310 1.8129 Consumption 0.0155 0.9730 Real activity -0.0192 -0.8350 Forward-looking -0.0120 -0.7734 Real activity 0.26% Panel B: Volatility Response Announcements bk t-stat News Type Business Inventories -0.0087 -0.7865 Investment Consumer Confidence Index 0.0393*** 3.3217 Forward looking Consumer Credit 0.0005 0.0470 Forward looking Chicago Purchasing Manager -0.0016 -0.1484 Forward-looking Construction Spending MoM 0.0240 1.8895 Investment Existing Home Sales MoM 0.0296*** 2.5643 Consumption Economic Optimism -0.0082 -0.7249 Forward-looking Factory Order 0.0056 0.5020 Investment FOMC Rate Decision 0.0526*** 3.9196 Monetary policy ISM Manufacturing 0.0144 1.0705 Forward-looking Leading Index 0.0172 1.4936 Forward-looking Monthly Budget Statement -0.0072 -0.6132 Government purchases New Home Sales 0.0219 2.0113 Consumption Philadelphia Fed Business Outlook 0.0293*** 2.5567 Forward-looking Pending Home Sales MoM -0.0098 -0.8077 Consumption Richmond Fed Manufact. Index 0.0081 0.6750 Real activity Univ. of Michigan Confidence -0.0081 -0.5060 Forward-looking Wholesale Inventories MoM 0.0009 0.0799 Real activity Pseudo R-Squared 34.61% Notes: This table reports the results of the estimations related to US macroeconomic announcement effects on the Canadian equity index. Panel A and B display the intraday return and volatility responses to news, respectively. Significant coefficients are denoted by ∗∗∗ for 1% significance level. Announcements Business Inventories Consumer Confidence Index Consumer Credit Chicago Purchasing Manager Construction Spending MoM Existing Home Sales MoM Economic Optimism Factory Order FOMC Rate Decision ISM Manufacturing Leading Index Monthly Budget Statement New Home Sales Philadelphia Fed Business Outlook Pending Home Sales MoM Richmond Fed Manufact. Index Univ. of Michigan Confidence Wholesale Inventories MoM Pseudo R-Squared
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Table 3 Panel A: Return Response US Crisis Non-US Crisis Announcements bk t-stat bk t-stat News Type Business Inventories Investment -0.0138 -0.4838 0.0141 0.7512 Consumer Confidence Index Forward-looking 0.2412*** 9.6683 0.0893*** 4.3948 Consumer Credit Forward-looking 0.0068 0.2062 0.0169 0.9553 Chicago Purchasing Manager Forward-looking -0.0033 -0.1027 0.0281 1.6480 Construction Spending MoM Investment 0.1244*** 3.6655 0.0063 0.3370 Existing Home Sales MoM Consumption 0.2083*** 5.6053 0.0583*** 3.2257 Economic Optimism Forward-looking -0.0004 -0.0126 0.0168 0.8802 Factory Order Investment 0.0219 0.8882 0.0059 0.2885 FOMC Rate Decision 0.1532*** 3.6024 -0.0027 -0.0965 Monetary policy ISM Manufacturing Forward-looking 0.1110*** 3.7837 0.0673*** 3.1348 Leading Index Forward-looking 0.1307*** 4.4055 0.0231 1.2632 Monthly Budget Statement Government purchases 0.0395 1.2737 0.0024 0.1217 New Home Sales Consumption 0.2140*** 4.4760 0.0467*** 2.8611 Philadelphia Fed Business Outlook 0.2152*** Forward-looking 7.5260 0.0606*** 3.2632 Pending Home Sales MoM Consumption 0.0326 0.7972 0.0267 1.4117 Richmond Fed Manufact. Index 0.0502 1.7095 -0.0034 -0.1794 Real activity Univ. of Michigan Confidence -0.0358 -1.2089 -0.0005 -0.0124 Forward-looking Wholesale Inventories MoM -0.0429 -1.2429 -0.0040 -0.2288 Real activity Pseudo R-Squared 0.35% Panel B: Volatility Response US Crisis Non-US Crisis Announcements bk t-stat bk t-stat News Type Business Inventories Investment -0.0376 -1.8670 0.0040 0.3041 Consumer Confidence Index Forward-looking 0.0269 1.3652 0.0471*** 3.1575 Consumer Credit Forward-looking -0.0072 -0.3070 0.0027 0.2175 Chicago Purchasing Manager Forward-looking -0.0102 -0.4568 0.0010 0.0791 Construction Spending MoM Investment 0.0213 0.8482 0.0217 1.4503 Existing Home Sales MoM Consumption 0.0203 0.7722 0.0344*** 2.6655 Economic Optimism Forward-looking -0.0456 -2.1358 0.0068 0.5065 Factory Order Investment -0.0126 -0.7257 0.0186 1.2856 FOMC Rate Decision Monetary policy 0.0969*** 3.2371 0.0644*** 3.4298 ISM Manufacturing Forward-looking -0.0068 -0.3120 0.0282 1.6403 Leading Index Forward-looking 0.0107 0.4936 0.0202 1.4814 Monthly Budget Statement Government purchases -0.0351 -1.6090 0.0041 0.2943 New Home Sales Consumption 0.0298 0.8826 0.0205 1.7773 Philadelphia Fed Business Outlook 0.0577*** Forward-looking 2.7460 0.0164 1.1939 Pending Home Sales MoM -0.0251 -0.8721 -0.0082 -0.6108 Consumption Richmond Fed Manufact. Index Real activity 0.0083 0.3585 0.0088 0.6246 Univ. of Michigan Confidence -0.0418 -1.9882 -0.0145 -0.5520 Forward-looking Wholesale Inventories MoM Real activity 0.0036 0.1469 0.0006 0.0501 Pseudo R-Squared 34.62% Notes: This table reports the results of the estimations related to US macroeconomic announcement effects on the Canadian equity index during the US crisis versus the non-US crisis period. Panel A and Panel B display the intraday return and volatility responses to news, respectively. Significant coefficients are denoted by ∗∗∗ for 1% significance level.
16
The effect of US macroeconomic news announcements on the Canadian stock market: Evidence using high-frequency data Syed Mujahid Hussain , Walid Ben Omrane PII: DOI: Reference:
S1544-6123(19)30148-5 https://doi.org/10.1016/j.frl.2020.101450 FRL 101450
To appear in:
Finance Research Letters
Received date: Revised date: Accepted date:
14 February 2019 23 January 2020 28 January 2020
Please cite this article as: Syed Mujahid Hussain , Walid Ben Omrane , The effect of US macroeconomic news announcements on the Canadian stock market: Evidence using high-frequency data, Finance Research Letters (2020), doi: https://doi.org/10.1016/j.frl.2020.101450
This is a PDF file of an article that has undergone enhancements after acceptance, such as the addition of a cover page and metadata, and formatting for readability, but it is not yet the definitive version of record. This version will undergo additional copyediting, typesetting and review before it is published in its final form, but we are providing this version to give early visibility of the article. Please note that, during the production process, errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain. © 2020 Published by Elsevier Inc.
Highlights
US news show significant effects on Canadian stock return and volatility. Stock returns show slightly more responses during US recession. US macroeconomic news trigger stock market linkages between US and Canada. High frequency data is important in analyzing news announcement effects.
1
The effect of US macroeconomic news announcements on the Canadian stock market: Evidence using high-frequency data Syed Mujahid Hussain*, Ψ and Walid Ben Omrane** *Department of Economics and Finance, College of Economics and Political Science, Sultan Qaboos University, Al-Khoudh, Muscat – Sultanate of Oman. **Department of Finance, Operations and Information Systems, Goodman School of Business - Brock University, Ontario, Canada.
Abstract We analyze the impact of US macroeconomic news announcements on the Canadian benchmark stock index return and volatility using high-frequency 5-min data. Our findings reveal that several US news releases exert a statistically significant influence on the Canadian stock market return and volatility. Moreover, we show that during the 2008 US recession, slightly more US news announcements exhibit significant impacts on the Canadian equity returns, with relatively pronounced effects. Overall, our results support previous findings by suggesting that US macroeconomic fundamentals form a linkage between Canadian and US financial markets.
Keywords: Intraday volatility; Macroeconomic news announcements; Financial crisis, Highfrequency data.
JEL classification: G14, G15
Ψ
Corresponding author.
2
1. Introduction Canada and the United States (US) share a long history of trade and financial linkages. For instance, Canada was the 2nd largest trading partner of the US with $581 billion in total goods trade during 2017.1 Moreover, a large number of Canadian companies are cross-listed on US exchanges and a significant proportion of these firms approach US capital markets to raise funds. 2 Such trade and financial linkages imply that the Canadian stock market would be exposed to the changes in the US financial and economic landscape. The objective of this paper is to analyze the impact of US macroeconomic news announcements on the Canadian benchmark stock index (i.e., S&P/TSX composite index) using high-frequency data. There are just a few earlier papers that have analyzed the impact of US macro news on Canadian financial markets. For example, Hayo and Neuenkirch (2012) study the effects of Canadian and US central bank communication and macroeconomic news on Canadian bond, stock, and foreign exchange market returns and volatility using daily closing prices. The authors find that Canadian central bank communication is more relevant than its US counterpart, however, US macro news dominate the response in comparison with those of the Canadian news. Gravelle and Moessner (2001) measure the reactions of Canadian and US interest rates to macroeconomic announcements released in Canada and the United States. Their results indicate that Canadian interest rates react very little to Canadian macroeconomic news but are significantly affected by US macroeconomic news releases. Overall, these findings show the dominant influence of US fundamentals on the Canadian financial markets. However, no study has so far specifically analyzed the impact of US macroeconomic releases on the intraday return and volatility of the Canadian equity index.
1
https://ustr.gov/countries-regions/americas/canada 165 Canadian firms were listed in US exchanges as of Dec 23, 2018. Source: http://topforeignstocks.com/foreign-adrs-list/the-complete-list-of-canada-stocks-trading-on-us-markets 2
3
This study aims to fill this gap and contributes to the existing literature in the following two ways: First, to the best of our knowledge, this is the first study that investigates the impact of US macroeconomic news releases on the Canadian equity index return and volatility using 5min high-frequency data. High-frequency data allows us to measure the precise effect of macro announcements while controlling for endogeneity and influence of external factors that may otherwise not be controlled for in the case of low-frequency data (Kearns and Manners, 2006; Hussain, 2011). Moreover, given the rapid rise of high-frequency trading in the last decade or so - understanding the precise effect of foreign macroeconomic announcements on equity markets is ever more important for traders and investors to formulate effective trading and hedging strategies and making portfolio allocation decisions. Second, we contribute to the literature by investigating whether the impact of US news announcements on Canadian stock index return and volatility is sensitive toward economic business cycles such as expansion and recession and more particularly the US financial crisis. Our main findings can be summarized as follows: Firstly, several US macroeconomic announcements are found to exert a statistically significant influence on the Canadian index return and volatility. Secondly, the Canadian equity market return responded more strongly to US macroeconomic news announcements during the 2008 US recession in comparison with expansion. Overall, these findings suggest that both countries are linked through economic fundamentals. The rest of the paper is organized as follows: Section 2 provides an overview of the data. The methodology is outlined in section 3 and the empirical results are discussed in section 4. Section 5 concludes the paper with a summary.
2. Data 2.1 Stock market data 4
We obtain the intraday 5-min price data for Canadian benchmark stock index (i.e., S&P/TSX composite index) from Olsen data. The data covers the period January 5th, 2007 through December 31st, 2013. Descriptive statistics of 5-min intraday returns are provided in Table 1. The average return is very small and close to zero. However, the highest and lowest return values are 14.76% and -6.23%, respectively. These extreme values would be considered as evidence of high volatility in the Canadian equity market.3
2.2. US News announcement Our news data on the US announcements comprise 18 macroeconomic news releases including the Federal Open Market Committee (FOMC) monetary policy decisions.4 These announcements are scheduled in advance and released on pre-specified dates and times. The list of those announcements along with the announcement time, their frequency and type is provided in Appendix A. We follow Balduzzi, Elton, and Green (2001) in calculating the standardized news surprise which is calculated by dividing the difference between the actual and expected news announcement figures (
) by the standard deviation of the same
difference. More formally, it can be written as: =
̂
(1)
3. Methodology Building on the methodology proposed by Andersen et al. (2003) and adopted by Harju and Hussain (2011), Hussain (2011), and recently Ben Omrane and Savaser (2017) among others, we estimate the following return and volatility equations to investigate the impact of US
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Both maximum and minimum return values are observed during US financial crisis. This reflects heightened volatility during such a recession period. We thank an anonymous referee for pointing this out. 4 The selection of the macroeconomic indicator is based on the prior literature, such as, Harju and Hussain (2011) and Hussain (2011).
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macroeconomic and monetary policy surprises on the Canadian stock index return and volatility.
3.1. Return response model The return equation is given as follows: ( )
( )
∑
∑
The left-hand side variable,
(2) is the 5-min percentage return for the Canadian benchmark
equity index. The right-hand side of equation (2) includes polynomial lag operators; ( ) and ( ) corresponding to AR(p) and MA(q) processes, respectively, and the standardized surprise,
relates to news surprise k released at time t (k=1….18).5 A significant
coefficient would imply that US macroeconomic announcement k released at time t has a significant impact on the Canadian stock market return.
3.2. Volatility response model The volatility equation consists of regressing the absolute value of the estimated residual term from equation (2) on macroeconomic news surprises and intraday seasonality control variables: ˆt =a(L) ε t +b(L)μ t +ψ
ˆ d(t) ζ N
X x2πt x2πt M βk,j Sk,t-j + δx cos +jx sin + γm Dm,t +μ t k=1 j=0 N N m=1 x=1 K
+
J
(3) The absolute residual term from return equation (2) is used as a proxy of intraday 5-min volatility. The right-hand side of the equation (3) includes the polynomial lag operators, ( )and ( ); the average daily volatility, ̂
( )
√ ; the standardized surprise,
; the
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In order to check for potential existence of multicollinearity between news variables, we have calculated the cross-correlations for all considered macroeconomic surprises. The correlation table shows very low and close to zero correlation values, indicating the absence of multicollinearity. We don’t report the correlation table for the sake of space, but it can be provided upon request.
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Flexible Fourier Form to control for variables,
intraday volatility patterns; and a set of dummy
to capture the market opening and closing times. N is the number of intraday
intervals within a trading day. In order to ensure strict periodicity, we construct a continuous return series by interpolating the missing observations. 6
4. Empirical Results The estimation results from equations (2) and (3) are reported in Table 2. Panel A shows that six US macroeconomic announcements have statistically significant effects on the Canadian stock market return.7 It also shows that positive news surprises related to forward-looking US macro indicators such as consumer confidence index, leading index, ISM manufacturing, and Philadelphia Fed Business Outlook trigger an increase in the Canadian index return. Other investment and consumption measures, such as existing home sales and new home sales also have positive significant effects on returns. Furthermore, US Consumer Confidence Index generates the largest return response in the Canadian stock market. One standard deviation increase in the US Consumer Confidence Index triggers an increase in the 5-min Canadian stock index return by approximately 0.15%. This finding is similar to Hussain et al. (2019) results showing that US Consumer Confidence Index has the most sizeable impact (0.165%) on the intraday returns in the Brazilian equity market. Our results are also consistent with Hayo and Neuenkirch (2012) who found that five different categories of US macro news are statistically significant in explaining the Canadian stock returns, while US monetary policy news is found to be relatively unimportant.8
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The number of missing observations is 849 (0.62%). We used linear interpolation to generate these missing data. 7 The statistical significance is reported at 1% significance level. 8 Hayo and Neuenkirch (2012) consider both US and Canadian macroeconomic news announcements (eleven US and twelve Canadian news). Compared to our study, their empirical framework involves a larger dataset and a different time period (1998-2006) with no specific business cycles.
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Regarding index volatility response to news, Panel B of Table 2 reports the contemporaneous volatility response coefficients estimated in equation (3). Overall, four US macroeconomic announcements trigger significant and positive volatility responses. These news surprises include Consumer Confidence Index, Existing Home Sales, FOMC rate decision, and Philadelphia Fed Business Outlook. It is worth noting that FOMC rate decision, which has no significant effect on index returns, shows the highest significant impact on the index volatility compared to the other three news. This implies that higher than expected rise in US interest rates will cause volatility to increase in the Canadian stock index. This finding is also consistent with Hussain et al. (2019) who show that US interest rate announcements trigger the highest volatility response in the Brazilian and Mexican equity markets. The nonsignificance of other news indicators might provide evidence that the Canadian equity market volatility is sensitive to only some specific US macroeconomic news releases. 9 Overall, our results are also generally in line with Singh et al. (2013) findings who use daily frequency data and report significant response of the Canadian stock index and volatility to US macroeconomic news announcements.10
4.1. US news announcement effects during the global financial crisis In this section, we test whether the effect of US macroeconomic news announcements on the Canadian equity market return and volatility is sensitive to economic business cycles such as US financial crisis. We then re-estimate equations (2) and (3) where we cross the standardized news surprise, . UScrisis
dummy
with two dichotomous variables,
and
is a dummy variable that takes the value 1 during the US
financial crisis and zero otherwise.
is also a dummy variable but takes the
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Hayo and Neuenkirch (2012) also found the Canadian stock index volatility to have a relatively subdued response to the US macroeconomic news announcements compared to the index returns. 10 Their response is, however, weaker compared to ours as they find that Canadian stock returns and volatilities are affected by three and two US macroeconomic indicators, respectively, out of the 14 selected US macro indicators in their sample – which might be due to the use of daily data.
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value 1 outside the US crisis and zero otherwise. We follow the National Bureau of Economic Research (NBER) to define the US crisis period, which starts in January 2008 and ends in June 2009. The estimation results related to return and volatility with respect to the crisis and non-crisis periods are reported in Panel A and B of Table 3, respectively. The return response to news shows that eight US macroeconomic news surprises significantly affect the Canadian equity market return during the US recession, while only 5 US macroeconomic news releases turned out to show significant effect outside the crisis period. Interestingly, US monetary policy announcements, more specifically FOMC rate decisions, exhibit a significant impact on the Canadian market return during the crisis while such an effect was muted in the case where we consider the whole sample period without distinguishing the crisis period (see Table 2). Another interesting result is related to US housing and construction-related indicators (i.e., Construction Spending, Existing Home Sales MoM and New Home Sales) that show a significant effect on the index return. This is plausible as US subprime crisis was mainly triggered by mortgage-related issues. This result is in line with Ben Omrane and Savaser (2016) who find evidence of a context-specific shift in investor reaction to macroeconomic news during the US financial crisis. Moreover, all the significant coefficients have positive signs implying that positive US macroeconomic surprises generate an appreciation in Canadian stock prices irrespective of crisis or no crisis period. However, of the 5 common US macroeconomic indicators that are found to be significant in both sub-periods, the coefficient values are relatively higher during the US crisis compared to the non-crisis period. This result shows that Canadian equity market returns exhibit a more pronounced response toward US macroeconomic news surprises during the US subprime crisis. Focusing on the Canadian equity market volatility response to news around US crisis period, we find no clear pattern for such a response compared to return responses. However, the
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FOMC rate decision, which is found to have a significant impact across both periods displays a higher impact during the crisis (0.097) compared to the non-crisis period (0.064). This implies that US monetary policy decisions amplify uncertainty in the Canadian equity market during the US financial crisis. 11 Overall, these results show that Canadian aggregate equity market returns are generally more responsive to US macroeconomic news announcements than volatility, especially during the US financial crisis.
5. Conclusion In this paper, we investigate the intraday Canadian equity market return and volatility responses to US macroeconomic news announcements using high-frequency data. We also explore the sensitivity of such effects during and around the US financial crisis. Our findings suggest that several US macroeconomic news surprises exert significant and immediate impact on the Canadian index return and volatility. We also find that during 2008 US recession, slightly more US news announcements exhibit significant impacts on the Canadian equity returns, with relatively pronounced effects. Overall, our results based on high-frequency data support the findings in the extant literature, mostly based on daily frequency, showing that US macroeconomic fundamentals form a linkage between Canadian and US financial markets. These findings imply reduced portfolio diversification opportunities for investors planning to invest in the US and Canada due to such linkages between the two countries particularly during US recessions.
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We have also computed average 5-minute volatility at 10:05 am and 2:20 pm in order to analyze the sensitivity of the Canadian market volatility to the aggregated US news announcements released at 10:00 am (macroeconomic news release time) and 2:15 pm (FOMC rate decision release time), respectively. Average volatility has been computed within two sub periods; the first involves the US financial crisis only (Jan - Oct 2008) without any overlap with the Canadian recession. The second sub period includes the rest of the sample period. Next, we have performed a two-tailed mean equality test to compare volatility means calculated during the two sub periods. The mean test result shows that US announcements trigger higher volatility during US recession compared to the rest of the sample period. The test results are available upon request.
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Syed Mujahid Hussain: Conceptualization, Methodology, Software, Writing- Original draft preparation Walid Ben-Omrane: Conceptualization, Data curation, WritingReviewing and Editing.
References Andersen, T. G., Bollerslev, T., Diebold, F. X., and Vega, C., 2003. Micro effects of macro announcements: Real-time price discovery in foreign exchange. American Economic Review, 93, 38–62. Balduzzi, P., Elton, E. J., Green, T. C., 2001. Economic news and bond prices: Evidence from the US treasury market. Journal of Financial and Quantitative Analysis, 36, 523–43. Ben Omrane, W., Savaser, T., 2016. The sign switch effect of macroeconomic news in foreign exchange markets. Journal of International Financial markets, Institutions and Money, 45, 96-114. Ben Omrane, W., Savaser, T., 2017. Exchange rate volatility response to macroeconomic news during the global financial crisis. International Review of Financial Analysis, 52, 130143. Gravelle, T., Moessner. R., 2001. Reactions of Canadian interest rates to macroeconomic announcements: Implications for monetary policy transparency. Bank of Canada Working Paper, 2001-5. Harju, K., Hussain, S. M., 2011. Intraday seasonalities and macroeconomic news announcements. European Financial Management, 17, 367-390. Hayo, B., Neuenkirch, M., 2012. Domestic or US news: what drives Canadian financial markets? Economic Inquiry, 50(3), 690–706. Hussain, S. M., 2011. Simultaneous monetary policy announcements and international stock markets response: An intraday analysis. Journal of Banking and Finance, 35, 752–764.
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Hussain, S.M., Ben Omrane, W., Al-Yahyaee, K. (2019). US macroeconomic news effects around the US and European financial crises: Evidence from Brazilian and Mexican equity indices. Global Finance Journal. Forthcoming Kearns, J., Manners, P., 2006. The Impact of monetary policy on the exchange rate: A study using intraday data. International Journal of Central Banking, 2(4), 157 – 183. Singh, M., Nejadmalayeri, A., and Lucey, B. (2013). Do U.S. macroeconomic surprises influence equity returns? An exploratory analysis of developed economies. The Quarterly Review of Economics and Finance, 53, 476–485.
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Appendix A Announcement 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Time
Business Inventories Consumer Confidence Index Consumer Credit Chicago Purchasing Manager Construction Spending MoM Existing Home Sales_MoM Economic Optimism Factory Orders FOMC Rate Decision ISM Manufacturing Leading Index Monthly Budget Statement New Home Sales Philadelphia Fed Business Outlook Pending Home Sales MoM Richmond Fed Manufacturing Index Univ. of Michigan Confidence Wholesale Inventories MoM
Frequency
Announcement Type
10:00 Monthly Investment 10:00 Monthly Forward looking 15:00 Monthly Real activity 9:45 Monthly Forward looking 10:00 Monthly Investment 10:00 Monthly Consumption 10:00 Monthly Forward looking 10:00 Monthly Investment 14:15 8 per year Monetary Policy 10:00 Monthly Forward looking 10:00 Monthly Forward looking 14:00 Monthly Government purchases 10:00 Monthly Consumption 10:00 Monthly Forward looking 10:00 Monthly Consumption 10:00 Monthly Real activity 09:55 Monthly Forward looking 10:00 Monthly Real activity Total Percentage of announcements on each of the week days
Mon
Tue
Wed
Thu
Fri
10 0 18 10 31 19 0 10 0 31 9 9 9 0 17 0 0 1 174 12%
20 81 12 12 16 14 76 17 15 16 1 12 13 0 21 82 0 21 429 30%
18 0 12 15 14 19 1 19 39 13 5 25 32 0 16 2 3 19 252 17%
14 3 13 14 11 23 0 22 2 12 62 19 17 84 25 0 2 15 338 24%
22 0 29 33 12 9 0 16 0 12 7 14 13 0 3 0 41 28 239 17%
Total obs. 84 84 84 84 84 84 77 84 56 84 84 79 84 84 82 84 46 84 1432 100%
Notes: This table reports US macroeconomic news announcements times in Eastern Standard Time (EST), frequency of the announcement, announcement type and the number of announcements for each indicator per day of the week.
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Table 1 Descriptive statistics for intraday 5-minute Canadian Index returns (S&P/TSX composite index) Mean Maximum Minimum
Standard Deviation Skewness Kurtosis AC return (1) q-Stat AC absolute return (1) q-Stat Observations Percentage of zero returns
0.0001 14.7643 -6.2353 0.1414 7.8324 1045.8 0.0140 24.9 0.2550 8780.9 135486 0.95
Notes: This table presents the summary statistics for Canadian equity index intraday returns.
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Table 2 Panel A: Return Response bk t-stat News Type 0.0056 0.3574 Investment 0.1471*** 9.3439 Forward looking 0.0146 0.9400 Forward looking 0.0211 1.4019 Forward-looking 0.0349 2.1332 Investment 0.0884*** 5.4847 Consumption 0.0114 0.7072 Forward-looking 0.0125 0.7966 Investment 0.0160 0.8402 Monetary policy 0.0807*** 4.6665 Forward looking 0.0580*** 3.7417 Forward looking 0.0132 0.7875 Government purchases 0.0625*** 4.0467 Consumption 0.1017*** 6.5358 Forward-looking 0.0310 1.8129 Consumption 0.0155 0.9730 Real activity -0.0192 -0.8350 Forward-looking -0.0120 -0.7734 Real activity 0.26% Panel B: Volatility Response Announcements bk t-stat News Type Business Inventories -0.0087 -0.7865 Investment Consumer Confidence Index 0.0393*** 3.3217 Forward looking Consumer Credit 0.0005 0.0470 Forward looking Chicago Purchasing Manager -0.0016 -0.1484 Forward-looking Construction Spending MoM 0.0240 1.8895 Investment Existing Home Sales MoM 0.0296*** 2.5643 Consumption Economic Optimism -0.0082 -0.7249 Forward-looking Factory Order 0.0056 0.5020 Investment FOMC Rate Decision 0.0526*** 3.9196 Monetary policy ISM Manufacturing 0.0144 1.0705 Forward-looking Leading Index 0.0172 1.4936 Forward-looking Monthly Budget Statement -0.0072 -0.6132 Government purchases New Home Sales 0.0219 2.0113 Consumption Philadelphia Fed Business Outlook 0.0293*** 2.5567 Forward-looking Pending Home Sales MoM -0.0098 -0.8077 Consumption Richmond Fed Manufact. Index 0.0081 0.6750 Real activity Univ. of Michigan Confidence -0.0081 -0.5060 Forward-looking Wholesale Inventories MoM 0.0009 0.0799 Real activity Pseudo R-Squared 34.61% Notes: This table reports the results of the estimations related to US macroeconomic announcement effects on the Canadian equity index. Panel A and B display the intraday return and volatility responses to news, respectively. Significant coefficients are denoted by ∗∗∗ for 1% significance level. Announcements Business Inventories Consumer Confidence Index Consumer Credit Chicago Purchasing Manager Construction Spending MoM Existing Home Sales MoM Economic Optimism Factory Order FOMC Rate Decision ISM Manufacturing Leading Index Monthly Budget Statement New Home Sales Philadelphia Fed Business Outlook Pending Home Sales MoM Richmond Fed Manufact. Index Univ. of Michigan Confidence Wholesale Inventories MoM Pseudo R-Squared
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Table 3 Panel A: Return Response US Crisis Non-US Crisis Announcements bk t-stat bk t-stat News Type Business Inventories Investment -0.0138 -0.4838 0.0141 0.7512 Consumer Confidence Index Forward-looking 0.2412*** 9.6683 0.0893*** 4.3948 Consumer Credit Forward-looking 0.0068 0.2062 0.0169 0.9553 Chicago Purchasing Manager Forward-looking -0.0033 -0.1027 0.0281 1.6480 Construction Spending MoM Investment 0.1244*** 3.6655 0.0063 0.3370 Existing Home Sales MoM Consumption 0.2083*** 5.6053 0.0583*** 3.2257 Economic Optimism Forward-looking -0.0004 -0.0126 0.0168 0.8802 Factory Order Investment 0.0219 0.8882 0.0059 0.2885 FOMC Rate Decision 0.1532*** 3.6024 -0.0027 -0.0965 Monetary policy ISM Manufacturing Forward-looking 0.1110*** 3.7837 0.0673*** 3.1348 Leading Index Forward-looking 0.1307*** 4.4055 0.0231 1.2632 Monthly Budget Statement Government purchases 0.0395 1.2737 0.0024 0.1217 New Home Sales Consumption 0.2140*** 4.4760 0.0467*** 2.8611 Philadelphia Fed Business Outlook 0.2152*** Forward-looking 7.5260 0.0606*** 3.2632 Pending Home Sales MoM Consumption 0.0326 0.7972 0.0267 1.4117 Richmond Fed Manufact. Index 0.0502 1.7095 -0.0034 -0.1794 Real activity Univ. of Michigan Confidence -0.0358 -1.2089 -0.0005 -0.0124 Forward-looking Wholesale Inventories MoM -0.0429 -1.2429 -0.0040 -0.2288 Real activity Pseudo R-Squared 0.35% Panel B: Volatility Response US Crisis Non-US Crisis Announcements bk t-stat bk t-stat News Type Business Inventories Investment -0.0376 -1.8670 0.0040 0.3041 Consumer Confidence Index Forward-looking 0.0269 1.3652 0.0471*** 3.1575 Consumer Credit Forward-looking -0.0072 -0.3070 0.0027 0.2175 Chicago Purchasing Manager Forward-looking -0.0102 -0.4568 0.0010 0.0791 Construction Spending MoM Investment 0.0213 0.8482 0.0217 1.4503 Existing Home Sales MoM Consumption 0.0203 0.7722 0.0344*** 2.6655 Economic Optimism Forward-looking -0.0456 -2.1358 0.0068 0.5065 Factory Order Investment -0.0126 -0.7257 0.0186 1.2856 FOMC Rate Decision Monetary policy 0.0969*** 3.2371 0.0644*** 3.4298 ISM Manufacturing Forward-looking -0.0068 -0.3120 0.0282 1.6403 Leading Index Forward-looking 0.0107 0.4936 0.0202 1.4814 Monthly Budget Statement Government purchases -0.0351 -1.6090 0.0041 0.2943 New Home Sales Consumption 0.0298 0.8826 0.0205 1.7773 Philadelphia Fed Business Outlook 0.0577*** Forward-looking 2.7460 0.0164 1.1939 Pending Home Sales MoM -0.0251 -0.8721 -0.0082 -0.6108 Consumption Richmond Fed Manufact. Index Real activity 0.0083 0.3585 0.0088 0.6246 Univ. of Michigan Confidence -0.0418 -1.9882 -0.0145 -0.5520 Forward-looking Wholesale Inventories MoM Real activity 0.0036 0.1469 0.0006 0.0501 Pseudo R-Squared 34.62% Notes: This table reports the results of the estimations related to US macroeconomic announcement effects on the Canadian equity index during the US crisis versus the non-US crisis period. Panel A and Panel B display the intraday return and volatility responses to news, respectively. Significant coefficients are denoted by ∗∗∗ for 1% significance level.
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