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A Tiny Problem For The Stock Market Right Now
Started:December 5th, 2011 (09:29 PM) by kbit Views / Replies:257 / 0
Last Reply:December 5th, 2011 (09:29 PM) Attachments:0

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A Tiny Problem For The Stock Market Right Now

Old December 5th, 2011, 09:29 PM   #1 (permalink)
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Aurora, Il USA
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A Tiny Problem For The Stock Market Right Now

This is the Citigroup Economic Surprise Index (via Bloomberg).
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Basically, it's a measure of how economic data is doing relative to expectations.
The technical definition:
The Citigroup Economic Surprise Indices are objective and quantitative measures of economic news. They are defined as weighted historical standard deviations of data surprises (actual releases vs Bloomberg survey median). A positive reading of the Economic Surprise Index suggests that economic releases have on balance beating consensus. The indices are calculated daily in a rolling three-month window. The weights of economic indicators are derived from relative high-frequency spot FX impacts of 1 standard deviation data surprises. The indices also employ a time decay function to replicate the limited memory of markets.
Anyway, as Cullen Roche recently pointed out, this measure is notoriously mean reverting, as analysts overshoot in their optimism, causing the data to be disappointing, and thus, potentially feeding negative, disappointed investor sentiment.
Granted, it doesn't represent any fundamental limit on the robustness of economic data, but it's going to get harder and harder for the data to surprise people with the reading basically at peak levels.

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