Do Macroeconomic Announcements Cause Asymetric Volatility?

Peter de Goeij and Wessel Marquering

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

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: Announcement Effects; Asymmetry; Multivariate GARCH; Stock and Bond Market; Time-Varying Covariances (search for similar items in EconPapers)
JEL-codes: C22 G12 G3 M (search for similar items in EconPapers)
Date: 2002-11-19
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Citations: View citations in EconPapers (2)

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