Is bad news cause of asymmetric volatility response? A note

N. Blasco, P. Corredor and R. Santamaria

Applied Economics, 2002, vol. 34, issue 10, 1227-1231

Abstract: This article uses a direct test of the impact of economic news on stock volatility. The main interest is to test whether the asymmetric response of volatility can be due to the effect of bad news. To do this, this study takes items of news into account as exogenous variables. The analysis is divided into two stages, each of which uses different items of news as exogenous variables additional to the information provided by the residuals. The first stage uses more exhaustively classified information whereas the second considers daily information as a global sign. This study finds that bad news is responsible for most of the observed asymmetric behaviour of variance. Further, this study detects that the GJR model adequately captures the impact of bad news when traders are not ready to carry out a time-consuming analysis of the information.

Date: 2002
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DOI: 10.1080/00036840110095436

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