Does Bad News Matter More Than Good?

It is not news that news moves financial markets. This blog will publish research on how, when, why, and which news moves what financial markets.

Bad news tends to have a bigger impact than good. Running a regression of the returns from futures on the S&P 500 index for 5 minutes before to 25 minutes after the data release on the derivatives-based non-farm payroll news gives:

S&P 500 Index	News Coefficient	Standard Error	t-Statistic	R2
Derivatives-Based News	0.00311	0.00082	3.78	0.3091

The same intraday regression as above is run but splitting the news effect into two (one when the news is a positive surprise and the other when the released number is less than expected):

S&P 500 Index	News Coefficient	Standard Error	t-Statistic	R2
Negative News	0.00331	0.00110	3.01	0.3108
Positive News	0.00285	0.00128	2.22

There is a slight overall improvement in fit (although the standard error increases and adjusted R² falls). Depending on the application of the results the difference in the estimated average effect for positive and negative of 0.00311 and the 0.00331 for good and 0.00285 for bad may be enough to justify the differentiation.