Extant literature suggests that the difficulty associated with the interpretation of macroeconomic news announcements by the market in general in different economic environments, might be the reason why most studies do not find any significant relationship between real-sector macroeconomic variables and financial asset returns. This paper aims to use a different approach to measure macroeconomic news. The objective is to examine if a different measure of a macroeconomic news variable, constructed from media coverage of the same, significantly affects hedge fund returns.
The authors use a news index for unemployment, which is a real-sector variable, constructed from newspaper coverage of unemployment announcements and examine its impact on hedge fund returns.
Contrary to the other studies that examine the impact of macroeconomic news on hedge fund returns, the authors find that media coverage of unemployment news announcements significantly affects hedge fund returns.
Overall, this paper demonstrates that the manner in which the market interprets macroeconomic news announcements in different economic environments is probably a more relevant factor for hedge funds and is more likely to impact hedge fund returns. In conjunction with variables – constructed from media coverage of unemployment news announcements – that factor in the manner of interpretation, it is found that surprises also matter for hedge fund returns. This is an important consideration for hedge fund managers as well.
To the best of the authors’ knowledge, this is the first study that examines the impact of media coverage of macroeconomic news announcements on hedge fund returns and finds significantly different results with real-sector macro variables.
Dutta, S. and Thorson, J. (2019), "Are hedge fund returns affected by media coverage of macroeconomic news?", Studies in Economics and Finance, Vol. 36 No. 3, pp. 427-439. https://doi.org/10.1108/SEF-10-2017-0289
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