The Federal Reserve Board eagle logo links to home page
Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Rounding and the Impact of News: A Simple Test of Market Rationality
Meredith Beechey and Jonathan H. Wright

Abstract: Certain prominent scheduled macroeconomic news releases contain a rounded number on the first page of the release that is widely cited by newswires and the press and a more precise number in the text of the release. The whole release comes out at once. We propose a simple test of whether markets are paying attention to the rounded or unrounded numbers by studying the high-frequency market reaction to such news announcements. In the case of inflation releases, we find evidence that markets systematically ignore some of the information in the unrounded number. This is most pronounced for core CPI, a prominent release for which the rounding in the headline number is large relative to the information content of the release.

Keywords: News Announcements, Rounding, Market Efficiency, Rational Inattention

Full paper (165 KB PDF) | Full Paper (Screen Reader Version)

Home | FEDS | List of 2007 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: February 22, 2007