Do Macroeconomic Announcements Cause Asymmetric Volatility?

40 Pages Posted: 30 Apr 2004

See all articles by Peter de Goeij

Peter de Goeij

Tilburg University

Wessel Marquering

Erasmus University Rotterdam (EUR) - Department of Financial Management

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Abstract

In this paper we study the impact of macroeconomic news announcements on the conditional volatility of stock and bond returns. Using daily returns on the S&P 500 index, the NASDAQ index, and the 1 and 10 year U.S. Treasury bonds, some interesting results emerge. Announcement shocks appear to have a strong impact on the (dynamics of) bond and stock market volatility. Our results provide empirical evidence that asymmetric volatility in the Treasury bond market can be largely explained by these macroeconomic announcement shocks. This suggests that the asymmetric volatility found in government bond markets are likely due to misspecification of the volatility model. Because firm-specific news is the most important source of information in the stock market, the asymmetries in stock volatility do not disappear after incorporating macroeconomic announcements into the volatility model. Moreover, by distinguishing FOMC (interest rate) announcements from PPI and EMP (labor market) announcements, we find that both types of announcements are important determinants in explaining the conditional mean and dynamics in volatility.

Keywords: Multivariate GARCH, Stock and Bond Market, Time-Varying Volatility, Asymmetry, Macroeconomic Announcements

JEL Classification: G12, C22

Suggested Citation

de Goeij, Peter and Marquering, Wessel A., Do Macroeconomic Announcements Cause Asymmetric Volatility?. Available at SSRN: https://ssrn.com/abstract=302345 or http://dx.doi.org/10.2139/ssrn.302345

Peter De Goeij (Contact Author)

Tilburg University ( email )

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Wessel A. Marquering

Erasmus University Rotterdam (EUR) - Department of Financial Management ( email )

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Rotterdam 3000 DR
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