Information aggregation around macroeconomic announcements: Revisions matter

I show that an empirical relation exists between stock returns on macroeconomic news announcement days and the future revisions of the released data but that this link differs across the business cycle. Using three major macroeconomic series that undergo significant revisions (nonfarm payroll, gross domestic product, and industrial production), I present evidence that daily returns on the Standard & Poor's 500 index and revisions are positively related in expansions and negatively related in recessions. The results suggest that revisions do matter, i.e., that investors care about the final revised value of a macroeconomic series, that they infer accurate information from the release of the preliminary inaccurate report, and that the more precise information is aggregated into prices on the day of the initial announcement. The results are consistent with the predictions of rational expectations trading models around public announcements combined with well-established empirical results on the asymmetric interpretation of information across the business cycle.