Senior economics reporter
BOSTON (MarketWatch)—When Washington sneezes, the world catches cold, at least in terms of the global stock market moves, according to new research presented Sunday at the American Economic Association meeting.
“[Former Fed chairman Ben] Bernanke was driving a large amount of volatility in the South African stock market…for reasons that are hard to explain,” said Nicholas Bloom, an economics professor at Stanford University. The paper was co-written by Scott Baker of the Kellogg School of Management at Northwestern University and Steven Davis of the University of Chicago.
Precrisis, U.S. economic policy developments accounted for only about 15% of sharp market moves. Macroeconomic news like the unemployment report, and company news accounted for more of the moves.
The researchers defined the sharp market moves in the. U. S. as a 2.5% intraday shift in the S&P 500 index. Since 2008, the percentage of sharp U.S. stock market moves tied to U.S. economic policy has doubled to 30%. Increasingly, the U.S. policy developments triggered sharp equity-market moves across the globe, the researchers found.
Davis noted that 2010-2012 was one of high policy uncertainty in the U.S., especially over the standoff between congressional Republicans and the Obama administration over the need to raise the federal debt ceiling.
The researchers used the next-day newspapers from around the world to determine the cause of the market move.