Why Bad News Is Usually Good for Stocks

American Finance Association

The extraction Markets Reaction to Unemployment News: wherefore Bad News Is normally Good for Stocks Author(s): John H. Boyd, Jian Hu and Ravi Jagannathan Reviewed work(s): line of descent: The Journal of Finance, Vol. 60, No. 2 (Apr., 2005), pp. 649-672 Published by: Wiley-Blackwell for the American Finance Association Stable URL: http://www.jstor.org/ shelter/3694763 . Accessed: 06/10/2012 20:19
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THEJOURNAL FINANCE* VOL.LX,NO. 2 * APRIL2005 OF

The Stock Markets Reaction to Unemployment News: Why Bad News Is Usually Good for Stocks
JOHN H.



BOYD,JIAN HU, and RAVIJAGANNATHAN* ABSTRACT
We find that on average, an announcement of rising unemployment is good news for stocks during scotch expansions and bad news during economic contractions. Unemployment news bundles three types of primitive information relevant for valuing stocks: information about future interest rates, the equity risk premium, and collective earnings and dividends. The nature of the information bundle, and hence the relative vastness of the three effects, changes over time depending on the state of the economy. For stocks as a group, information about interest rates dominates during expansions and information about future corporate dividends dominates during contractions.

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