Anomalies and Spill Over Effects Induced by US Unemployment Press Releases: An Event Study of the Stock Market

Abstract: The primary purpose of this thesis is to analyze how the US unemployment rate affects the US market and markets overseas, the latter called spill over effects. Indications of market inefficiency are also analysed.Our expectations are that unanticipated unemployment rate should affect stock markets, especially small, dependant markets like the Swedish. Also we expect that lower than expected unemployment rate (positive news), should cause a rise in equity prices, and vice versa.Using market forecasts and real unemployment rate for 49 consecutive months to calculate unanticipated unemployment rate, we find that positive news are indeed valued higher than negative news, although not statistically significant.Using a larger sample and estimated forecasts, we find that positive news seems to lower equity prices and vice versa. We also find that in all markets, stock return rises in answer to a press release, regardless of the information content. The Swedish market appears to be inefficient.