Inflation Surprise and Equity Returns Surrounding the 2001 Recession: Are the Effects Asymmetric?
We analyze the effects of unanticipated inflation on three major U.S. stock index returns – the DJIA, the Nasdaq100 and the S&P500 – from 1998 to 2003, using an event-study methodology. We investigate if there is state dependence and asymmetry in the return- inflation relationship. Using 5-25-minute intraday post-announcement returns and PPI as inflation we confirm state dependence and asymmetry. Additionally, the jumps in the conditional mean are quite persistent. These results continue to hold when we bootstrap the regression coefficients to account for possible non-normality.
Macro announcements, inflation, intraday returns.