Multifrequency news and stock returns

Laurent Calvet and Adlai Fisher

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Abstract: Equity prices are driven by shocks with persistence levels ranging from intraday horizons to several decades. To accommodate this diversity, we introduce a parsimonious equilibrium model with regime shifts of heterogeneous durations in fundamentals, and estimate specifications with up to 256 states on daily aggregate returns. The multifrequency equilibrium has higher likelihood than the Campbell and Hentschel [1992. No news is good news: an asymmetric model of changing volatility in stock returns. Journal of Financial Economics 31, 281-318] specification, while producing volatility feedback 10 to 40 times larger. Furthermore, Bayesian learning about volatility generates a novel trade-off between skewness and kurtosis as information quality varies, complementing the uncertainty channel [e.g., Veronesi, 1999. Stock market overreaction to bad news in good times: a rational expectations equilibrium model. Review of Financial Studies 12, 975-1007]. Economies with intermediate information best match daily returns.

Keywords: Multifrequency news; Volatility feedback; Learning; Long-run risks (search for similar items in EconPapers)
Date: 2007-10-01
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Citations: View citations in EconPapers (43)

Published in Journal of Financial Economics, 2007, Vol.86, n°1, pp.178-212. ⟨10.1016/j.jfineco.2006.09.001⟩

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Related works:
Working Paper: Multifrequency News and Stock Returns (2011)
Journal Article: Multifrequency news and stock returns (2007)
Working Paper: Multifrequency News and Stock Returns (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00459675

DOI: 10.1016/j.jfineco.2006.09.001

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