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We empirically investigate the short-run impact of anticipated and unanticipated unemployment rates on stock prices. We particularly examine the nonlinearity in the stock market’s reaction to the unemployment rate and study the effect at each individual point (quantile) of the stock return distribution. Using nonparametric Granger causality and quantile regression-based tests, we find that only anticipated unemployment rate has a strong impact on stock prices. Quantile regression analysis shows that the causal effects of anticipated unemployment rate on stock returns are usually heterogeneous across quantiles. For the quantile range 0.35, 0.80, an increase in the anticipated unemployment rate leads to an increase in stock market prices. For other quantiles, the impact is generally statistically insignificant. Thus, an increase in the anticipated unemployment rate is, in general, good news for stock prices. Finally, we offer a reasonable explanation for the reason, and manner in which, the unemployment rate affects stock market prices. Using the Fisher and Phillips curve equations, we show that a high unemployment rate is followed by monetary policy action of the Federal Reserve (Fed). When the unemployment rate is high, the Fed decreases the interest rate, which in turn increases the stock market prices.

We present empirical evidence on whether the introduction of the euro has changed the effect of economic fundamentals on the growth rates of euro countries' GDPpc and GDPpc volatility. We find that there is a statistically sig- nificant structural break in the impact of increments in government debt on both economic growth and uncertainty. In particular, after adoption of the euro incre- ments in government debt decreased growth and increased uncertainty. These results are robust to a battery of checks, including exclusion of the recent finan- cial crisis period, comparison with non-euro European countries, and controlling for different debt/GDP ratios.