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«That Shook The Market” “Events Ray C. Fair Department of Economics, Yale University This paper can be downloaded without charge from the Social ...»

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Yale ICF Working Paper No. 00-01

(Version: January 2000)

That Shook The Market”


Ray C. Fair

Department of Economics, Yale University

This paper can be downloaded without charge from the

Social Science Research Network Electronic Paper Collection:


Events that Shook the Market

Ray C. Fair∗

January 2000


Tick data on the S&P 500 futures contract and newswire searches are used

to match events to large five minute stock price changes. 58 events that led to large stock price changes are identified between 1982 and 1999, 41 of which are directly or indirectly related to monetary policy. Many large five minute stock price changes have no events associated with them.

1 Introduction Although it is obvious that stock prices respond to events, it is not easy to match particular events to particular changes in stock prices. For example, Cutler, Poterba, and Summers (1989) chose the 50 largest daily changes in the S&P 500 index from 1946 through 1987 and attempted to find an explanation of each change in the next day’s New York Times. They found few cases in which it could be said with any confidence that a particular event led to the change. A serious problem with studies like this is that the daily interval is too long. In general in a 24 hour period many events take place and stock prices are fairly volatile.

∗ Cowles Foundation,Yale University, New Haven, CT 06520-8281. Voice: 203-432-3715; Fax:

203-432-6167; e-mail: ray.fair@yale.edu; website: http://fairmodel.econ.yale.edu. I am indebted to William Nordhaus and Sharon Oster for helpful comments.

In this paper tick data on the S&P 500 futures contract and newswire searches are used to match events to stock price changes. The tick data are used to create the average price per each minute of trading, from which five minute price changes are computed. Although it is somewhat arbitrary what one takes as a ‘‘large’’ price change, for purposes of this study ‘‘large’’ is taken to be a five minute change greater than 0.75 percent in absolute value. The mean and standard deviation of the 1,884,278 five minute price changes that are examined here are 0.00047 percent and 0.10 percent, respectively, and so a change of 0.75 percent is an extreme change.

Given each large change, newswires were searched to see if an event could be found that led to the change. Table 1, which is at the end of this paper, lists the large price changes and the events that were found. This paper is essentially a discussion of Table 1. There are 4417 trading days in the dataset (between April 21, 1982, and October 29, 1999), and in 179 of these days at least one large price change occurred, i.e., a five minute change greater than 0.75 percent in absolute value. Events were found for 58 of these days. As will be seen, 41 of these 58 events are directly or indirectly related to monetary policy.

It is hoped that knowledge of the 58 events in Table 1 will prove useful in other studies. Each of these events is big in that it changed the total value of U.S. equities by a large amount rapidly. This information may be useful in examining changes in individual stock prices, both absolute and relative to price changes of other stocks.

From a macroeconomic perspective, the events are macro shocks, and knowledge of these shocks may be useful in examining various macroeconomic questions.

It is important to stress that this study is purely descriptive. No attempt is made to explain why a particular event led to the large price change, why other similar events did not lead to large price changes, why many large price changes have no events associated with them, and so on. The main contribution of this paper is simply to list the 58 events.

It is also important to stress that with a very few exceptions it is virtually certain that each of the 58 events listed in Table 1 caused the particular price change. The events can thus be interpreted as ‘‘facts.’’ For example, no sensible person would argue that the five minute price increase of 0.85 percent on June 25, 1982, was not essentially all due to the 4:10 pm money supply announcement. There would likely have been, of course, a price change had there been no announcement, since the price generally changes each minute, but with a standard deviation of 0.10 percent, a typical price change is very small relative to a change of 0.85 percent. For all intents and purposes one can attribute all of the price change to the money supply announcement.

A way of thinking about the events is the following. Consider asking stock brokers a few minutes after the occurrence of one of the price changes in Table 1 that is associated with an event what led, if anything, to the change. The main point here is that almost without exception the brokers would say the event. Some events may have been missed—more will be said about this later—but there is little doubt that each of the 58 events chosen led to the particular price change.

The construction of Table 1 is discussed in Section 2, and the results are discussed in Sections 3 and 4.

2 The Construction of Table 1 The price of an S&P 500 futures contract follows closely the value of the S&P 500 index. Since the S&P 500 index includes most U.S. stocks by market value, the price of an S&P 500 futures contract is a good indicator of the total value of U.S. equities.

Tick data are available for the S&P 500 futures contracts from April 1982 on.1 For ‘‘Regular Trading Hours’’ (RTH) the tick data per day begin at 10:00 am prior to September 30, 1985, and at 9:30 am after that.2 The RTH data end at 4:15 pm, which is 15 minutes after the regular market has closed. Beginning in 1994 the contracts were traded after hours on the GLOBEX market, and tick data are available for these trades as well. These data begin at 4:30 pm and end at 9:15 am the next day. The GLOBEX market is closed Friday night and all day Saturday. It opens at 6:30 pm Sunday night.

For this study the RTH data begin April 21, 1982, and end October 29, 1999. Data are missing for the last half of December 1991—the 1991 data end December 13th.

The GLOBEX data begin January 4, 1994, and end October 29, 1999. Data are missing for the last half of 1998—the 1998 GLOBEX data end July 31st. Many government announcements of macroeconomic data occur at 8:30 am, and since the GLOBEX market is open at this time, it can respond immediately to these announcements. Had the GLOBEX market been in existence back to 1982 and tick data been available, it is likely that many more large price changes and associated events would have been 1 The tick data were purchased from the Futures Industry Institute, which obtains the data from the Chicago Mercantile Exchange.

2All times in this paper are Eastern even though the RTH and GLOBEX markets are in the Central time zone.

found. It is also likely that a number of large price changes and associated events would have been found in GLOBEX data for the last half of 1998 had the data been available.

The tick data were averaged per one minute interval to get the average price per minute. The most actively traded contract on the particular day was used for these calculations. Five minute percent changes were then computed, data permitting.

There were 1,884,178 five minute price changes available. Table 1 lists the five minute percent changes that were larger than 0.75 percent in absolute value. The table also lists the percent change from the opening price at the current time (i.e., the time at the end of the five minute change) and at the time 20 minutes later. This allows one to see if the large price change lasted for at least 20 minutes.

The next step was to see which event, if any, led to the large and rapid change.

The Dow Jones Interactive service on the internet was used for this purpose. This service allows one to search for news reports by time of day. The following four news services were searched: Dow Jones News Service, Associated Press Newswire, New York Times, and Wall Street Journal.

For example, the first case in Table 1 is for June 11, 1982, where at 10:05 am the price had fallen by 0.83 percent from the price at 10:00 am (which in this case was the opening price). For this case the news services were searched for news reports between 9:00 am and 11:00 am to see what happened about 10:00 am that led to the large change. In this case no news report was found that seemed likely to have led to the change. Note also that most of the change did not last 20 minutes, since the decrease from the open after 20 minutes is only 0.34 percent compared to 0.83 percent 20 minutes earlier.

In the next case in Table 1 an event was found, which was the 10:00 am announcement of a $1.18 billion current account surplus. Following this announcement the price rose 0.76 percent in five minutes, although this is also a case in which most of the change did not last 20 minutes. The next three events that were found were all money supply announcements at 4:10 pm. Although the regular stock market is closed at 4:00 pm, the RTH market does not close until 4:15 pm, and so the RTH market has time to respond to the money supply announcements.

In some cases an event was found that seemed almost surely to have led to the price change, but for which no exact time could be found. In these cases ‘‘?time’’ is used in Table 1 to denote that the exact time of the event was not found. For the October 9, 1990, change I am a little uncertain whether the Brazil event in fact led to the change, and this is indicated by a ‘‘(?)’’ in the table. For the August 1, 1997, change I am uncertain which of the three events listed led to the change, and this is also indicated by a ‘‘(?)’’ in the table.

An important government announcement each month is the employment report.

This report is released at 8:30 am (sometimes 8:29 am, at least according to the time on the press wires), and it contains data from both the household survey and the establishment survey. The main variable of interest from the household survey is the unemployment rate, and the main two variables of interest from the establishment survey are the number of jobs (called ‘‘payrolls’’) and average hourly earnings. The variable that gets the most attention is the payroll variable, and so I have listed the payroll announcement in Table 1. The ‘‘event’’ is, however, the entire employment report, and there is no way of telling which aspect of the report led to the large price change.

In many cases one large five minute change is followed by a number of others.

This is, of course, as expected. If, say, the price has been constant for five minutes and then an event leads to a large change in the first minute and the change is sustained, there will be a total of five large five minute price changes. The focus in this paper is on the first occurrence of the large five minute change. To save space not all of the later changes are presented in Table 1, especially on wild days, although it is always indicated how many changes are not presented. A complete table is available for those who are interested—see the discussion in the Appendix. There were 1,487 large five minute price changes out of 1,884,278 observations.

3 Discussion of Table 1 Although, as discussed in Section 1, it is virtually certain that each of the 58 events listed in Table 1 caused the particular price change, it may be that some events have been missed (aside from the missing data). I personally did all the searching for news reports (no research assistants were used for any part of this project), and so I am to blame if some events have been missed. The most likely error is an event for which there was no news report. Less likely is a news report that was listed in the search but that I failed to notice was an important event. I expect that the number of events missed is small, probably fewer than 10. Remember, however, that many more price changes and events would likely have been found had the GLOBEX market been in existence prior to 1994.

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