Do Macroeconomic Announcements Cause Asymetric Volatility?

46 Pages Posted: 18 Jan 2003

See all articles by Peter de Goeij

Peter de Goeij

Tilburg University

Wessel Marquering

Erasmus University Rotterdam (EUR) - Department of Financial Management

Date Written: 19 2002, 11

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, for January 1982 - August 2001, 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 thatasymmetric 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. After including macroeconomic announcements into the model, the asymmetry disappears. Becausefirm-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.

Keywords: Multivariate GARCH, Stock and Bond Market, Time-Varying Covariances, Asymmetry, Announcement Effects

JEL Classification: M, G3, C22, G12

Suggested Citation

de Goeij, Peter and Marquering, Wessel A., Do Macroeconomic Announcements Cause Asymetric Volatility? (19 2002, 11). Available at SSRN: https://ssrn.com/abstract=371050

Peter De Goeij (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Room I607
Tilburg, Noord-Brabant 5000 LE
Netherlands
+31134662083 (Phone)

Wessel A. Marquering

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

P.O. Box 1738
F4-26
Rotterdam 3000 DR
Netherlands
+31 10 408 2786 (Phone)
+31 10 408 9017 (Fax)

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