Knowledge Bank

This paper examines the short-term relationship between the percentage surprise in unemployment rates and the percentage change in U.S. stock market returns. In addition to analyzing the relationship between the level and change in monthly unemployment rates and the level and change in stock market returns for both the whole market and different sectors, I address time-series issues such as stationary and seasonality in the stock data. By utilizing short-window financial data, this research aims to minimize the influence of other events and capture investors' immediate reactions. The results of the regression analysis reveal that positive (negative) surprises have a significant negative (positive) impact on the overall stock market but not on individual sectors. Furthermore, the surprises introduce more uncertainty for investors, as demonstrated by the increased trading volume and volatility.