Impacts of the US macroeconomic news on Asian stock markets

Abstract

Purpose – This paper aims to investigate the spillover effect of 14 US key macroeconomic news on the first two moments of 12 Asian stock market returns. Design/methodology/approach – The authors collect market expectation and actual scheduled announcements data for 14 key US's macroeconomic announcements from January 2002 to April 2012 from Bloomberg. The dataset consists of six groups: monetary policy and general macroeconomic indicators: the Federal Reserve's target interest rates (FOMC), gross domestic product (GDP), and leading indicator (LI); price indicators: consumer price index (CPI) and producer price index (PPI); business indicator: housing starts (HS) and industrial production (IP); consumption indicators: retail sales (RS) and consumer confidence level (CONSUM); labor market indicators: non-farm payroll (NFP), unemployment level (UE), and jobless claim (JOB); and external sector indicators: current account (CA) and trade balance (TB). The authors also collect daily opening and closing data of 12 Asian stock markets. Following Dow Jones classification, the authors divide them into two groups: five developed markets (Japan, Hong Kong, Republic of Korea, Singapore and Taiwan), and seven emerging markets (China, India, Indonesia, Malaysia, Pakistan, Sri Lanka, and Thailand). The MA-EGARCH (1,1) model is used for the empirical test. Findings – First, the authors find that stronger than expected news from the USA is associated with higher conditional mean and lower conditional variance of the Asian stock market returns, in general. Second, the Asian stock markets tend to put more weight on information relating to the US labor market than the other news as this indicator reveals much information about the underlying health of the US economy since full employment is the most important mandate for the US administration and policy makers. Third, in responding to the US news, the Asian emerging markets seem to respond stronger to the US news than the Asian developed markets both in terms of the number of responses and the magnitude of the reaction. This suggests that this could be seen as evidence that emerging markets are more dependent on the information content of the US news than the developed markets. Fourth, the US news is absorbed gradually leading to persisting volatility responses in the Asian stock markets. Originality/value – The authors fill a gap in the extant literature in investigating the speeds of the news absorption across the Asia region by examining the spillover effects across three time horizons, namely daily, overnight and intraday.

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