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Since the advent of electronic trading in the late 1990s, S&P 500 futures have traded close to 24 hours a day. In this post, which draws on our recent Staff Report, we document that holding U.S. equity futures overnight has earned a large positive return during the opening hours of European markets. The largest positive returns in the 1998–2019 sample have accrued between 2 a.m. and 3 a.m. U.S. Eastern time—the opening of European stock markets—and averaged 3.6 percent on an annualized basis, a phenomenon we call the overnight drift.
Julian di Giovanni describes work with Galina Hale that employs an empirical framework to quantify the role of the global production network in transmitting U.S. monetary policy across international stock markets.
“U.S. stocks are racing toward a second consecutive quarter of dramatic gains, continuing a historic stock-market recovery that few predicted in the depths of the March downturn,” said a September Wall Street Journal article. “The stock market is detached from economic reality. A reckoning is coming,” said the Washington Post. What is going on? In this post, I look not at what stocks have actually done or will do, but at what investors expected should have happened, and what they expect will happen going forward. It turns out that, at least by the particular measure of expectations I consider, investors expected stock returns to be high all along and continue to expect the same in the future.
Olivier Armantier, Michael Neubauer, Daphne Skandalis, and Wilbert van der Klaauw
In our previous post, we looked at political polarization in economic expectations based on county-level results in the 2016 presidential election. In this post, we analyze how expectations leading up to and following the 2018 midterm elections evolved based on how districts voted in the House of Representatives elections. Do we see a similar post-election change in political polarization of beliefs when comparing congressional districts in which a Republican won in 2018 with those won by a Democrat? Were observed changes in expectations leading up to the 2018 elections systematically different in areas where the election resulted in a change in the party holding the House seat? We show that economic expectations deteriorated notably between the 2016 and 2018 elections in districts that switched from Republican to Democratic control, compared to districts that remained Republican.
Erin Denison, Michael J. Fleming, and Asani Sarkar
In our previous post, we assessed losses to customers and clients from foregone opportunities after Lehman Brothers filed for bankruptcy in September 2008. In this post, we examine losses to Lehman and its investors in anticipation of bankruptcy. For example, if bankruptcy is expected, Lehman’s earnings may decline as customers close their accounts or certain securities (such as derivatives) to which Lehman is a counterparty may lose value. We estimate these losses by analyzing Lehman’s earnings and stock, bond, and credit default swap (CDS) prices.
Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.
The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.
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