Do U.S. macroeconomic surprises influence equity returns? An exploratory analysis of developed economies

•The paper explores effects of U.S. macroeconomic shocks on developed stock markets.•US macro shocks do not influence equity returns materially in these economies.•For equity return levels, inflation, productivity, and retail sales matter.•Trade-connectedness may partially explain the extent of transmission of shocks.

Given the dominant role the U.S. economy plays in global trade, we explore how U.S. macroeconomic surprises affect stock markets in ten major developed economies as well as in China and India. We do not find strong enough evidence to conclude that U.S. macro shocks materially and consistently influence equity returns and volatilities in the economies studied. Consistent with previous research, it appears that only in few markets are return levels materially influenced by macro surprises generated in the U.S. Also, only a small number of macro shocks seem to be of any consistent significance. For returns levels, inflation, productivity, consumer confidence, and retail sales seem to matter. At the same time, conditional volatilities appear to be influenced by inflation, retail sales, durable goods, industrial production, consumer confidence, gross domestic product, and trade balance surprises. Finally, our exploratory analysis indicates that the degree of bilateral trade connectedness may partially explain the extent to which macroeconomic surprises are transmitted across countries.