How Markets Process Information: News Releases and Volatility

We examine the impact of scheduled macroeconomic news announcements on interest rate and foreign exchange futures markets. We find these announcements are responsible for most of the observed time-of-day and day-of-the-week volatility patterns in these markets. While the bulk of the price adjustment to a major announcement occurs within the first minute, volatility remains substantially higher than normal for roughly fifteen minutes and slightly elevated for several hours. Nonetheless, these subsequent price adjustments are basically independent of the first minute's return. We identify those announcements with the greatest impact on these markets.     

Intraday futures market behaviour around major scheduled macroeconomic announcements: Australian evidence

This paper examines intraday futures market behaviour around major scheduled macroeconomic information announcements on the Sydney Futures Exchange (SFE). Prior literature analysing intraday price behaviour around announcements is extended to trading volume and quoted bid–ask spreads. The analysis of price volatility, trading volume and quoted bid–ask spreads indicates that the majority of adjustment to new information occurs rapidly, within 240 seconds of the scheduled time for major announcements, with some evidence of abnormal activity prior to announcements. Analysis of quoted bid–ask spreads suggests that they significantly widen in the 20 seconds prior to announcements and remain significantly wider for 30 seconds following announcements. The increase in quoted spreads is related to both expected and unexpected volatility, implying that market participants increase quoted spreads around information announcements as a consequence of adverse selection costs.     

Impact of macroeconomic news on metal futures

This paper uses intra-day data for the period 2002 through 2008 to examine the intensity, direction, and speed of impact of US macroeconomic news announcements on the return, volatility and trading volume of three important commodities - gold, silver and copper futures. We find that the response of metal futures to economic news surprises is both swift and significant, with the 8:30 am set of announcements - in particular, nonfarm payrolls and durable goods orders - having the largest impact. Furthermore, announcements that reflect an unexpected improvement in the economy tend to have a negative impact on gold and silver prices; however, they tend to have a positive effect on copper prices. In comparison, realized volatility and volume for all three metals are positively influenced by economic news. Finally, there is evidence that several news announcements exert an asymmetric impact on market activity variables.     

THE EFFECTS OF THE ANNOUNCEMENTS OF DIVIDEND INCREASES ON STOCK RETURN VOLATILITY: THE EVIDENCE FROM THE OPTIONS MARKET

This paper examines the impact of the announcements of dividend increases on the volatility of underlying stock returns implied by option prices, and analyses whether the impact is related to the label associated with the dividend increase. The results suggest that the announcements of labelled dividend increases are accompanied by a decrease in implied volatility, while the announcements of unlabelled increases in dividends are associated with no change in implied volatility. These results are consistent with the hypothesis that signal implicit in the announcements of dividend increases provides noisy information about the firm's volatility.     

The impact of FIFA’s official announcements on the stock market of Qatar: The case of the 2022 World Cup

This study examines the impact of the FIFA’s official announcements on Doha Stock Exchange (DSE) of Qatar with respect to the 2022 World Cup. Using the abnormal unsystematic volatility method of Hilliard and Savickas (2002), our empirical findings reveal that the DSE market is sensitive to FIFA’s announcements about the 2022 World Cup. We find that four out of six FIFA announcements act as primary drivers to the DSE market volatility. The significant reactions of the DSE market to these announcements unveil the investors’ sentiments about the fate of the governmental and private expenditures on medium- and long-term projects undertaken in anticipation of hosting the 2022 World Cup. The results have some implications to investors in this newly emerging market related to this global sporting event. Any future announcements, good or bad, are likely to impact share prices in DSE market and trigger portfolio reallocation by local and international investors, leading to increased volatility.     

Central Bank Actions and Words: The Intraday Effects of FOMC Policy Communications on Individual Equity Volatility and Returns

We compare intraday impacts of the release of Federal Reserve decision announcements and of Federal Open Market Committee minutes between 2004 and 2015 on 1,997 equity return and volatility series. We find that returns are unresponsive to either news release, but conditional volatility increases for both, manifesting immediately after each information release, and persisting for 30 minutes post‐announcement. These effects are larger for decisions than for minutes. On stratifying firms by trading intensity, we find most “high trading intensity” firms respond to these announcements, while “low trading intensity” firms are less affected. Our results show that traders respond, albeit differently, to both sets of information releases.     

The Impact of Public Information on the Stock Market

We study the relation between the number of news announcements reported daily by Dow Jones & Company and aggregate measures of securities market activity including trading volume and market returns. We find that the number of Dow Jones announcements and market activity are directly related and that the results are robust to the addition of factors previously found to influence financial markets such as day-of-the-week dummy variables, news importance as proxied by large New York Times headlines and major macroeconomic announcements, and noninformation sources of market activity as measured by dividend capture and triple witching trading. However, the observed relation between news and market activity is not particularly strong and the patterns in news announcements do not explain the day-of-the-week seasonalities in market activity. Our analysis of the Dow Jones database confirms the difficulty of linking volume and volatility to observed measures of information.     

Has the Information Content of Quarterly Earnings Announcements Declined in the Past Three Decades?

This paper examines changes in the information content of earnings over the past three decades using the two metrics from Beaver [1968]: abnormal trading volume and abnormal return volatility. We find no evidence of a decline in the information content of earnings announcements over the past three decades, as measured by both abnormal trading volume and return volatility around quarterly earnings announcements. If anything, our results suggest an increase over time in the informativeness of quarterly earnings announcements. Variables reflecting changes in firm-specific factors account for a portion of the observed increase.     

Implied Standard Deviations and Post-earnings Announcement Volatility

This paper investigates volatility increases following annual earnings announcements. Standard deviations implied by options prices are used to show that announcements of bad news result in a lower volatility increase than those of good news, and delay the increase by a day. Reports that are difficult to interpret also delay the volatility increase. This delay is incremental to that caused by reporting bad news, although the effect of bad news on slowing down the reaction time is dominant. It is argued that the delays reflect market uncertainty about the implications of the news.     

Impact of macroeconomic announcements on implied volatility slope of SPX options and VIX

This paper examines the impact of macroeconomic announcements on the high-frequency behavior of the observed implied volatility skew of S&P 500 index options and VIX. We document that macroeconomic announcements affect VIX significantly and slope at a lesser extent. We also find evidence that good and bad announcements significantly and asymmetrically change implied volatility slope and VIX.     

Idiosyncratic Volatility and Firm‐Specific News: Beyond Limited Arbitrage

We examine the relation between idiosyncratic volatility and returns around news announcements. Mispricing is most likely to occur during news announcements. If idiosyncratic volatility generates a limit to arbitrage, then the negative relation between returns and news volatility should be stronger than the relation to nonnews volatility. Instead, we find nonnews volatility has a robust negative relation to returns and lacks key features expected if volatility were a reflection of limits to arbitrage. Pricing of nonnews volatility is related to lottery‐like features of a stock's return. Our results suggest that volatility has a price effect beyond a limit to arbitrage.     

Volatility spillovers and the effect of news announcements

We examine the effect of US and European news announcements on the spillover of volatility across US and European stock markets. Using synchronously observed international implied volatility indices at a daily frequency, we find significant spillovers of implied volatility between US and European markets as well as within European markets. We observe a stark contrast in the effect of scheduled versus unscheduled news releases. Scheduled (unscheduled) news releases resolve (create) information uncertainty, leading to a decrease (increase) in implied volatility. Nevertheless, news announcements do not fully explain the volatility spillovers, although they do affect the magnitude of volatility spillovers. Our results are robust to extreme market events such as the recent financial crisis and provide evidence of volatility contagion across markets.     

The Determinants of Implied Volatility: A Test Using LIFFE Option Prices

This paper presents and tests a model of the volatility of individual companies' stocks, using implied volatilities derived from option prices. The data comes from traded options quoted on the London International Financial Futures Exchange. The model relates equity volatilities to corporate earnings announcements, interest-rate volatility and to four determining variables representing leverage, the degree of fixed-rate debt, asset duration and cash flow inflation indexation. The model predicts that equity volatility is positively related to duration and leverage and negatively related to the degree of inflation indexation and the proportion of fixed-rate debt in the capital structure. Empirical results suggest that duration, the proportion of fixed-rate debt, and leverage are significantly related to implied volatility. Regressions using all four determining variables explain approximately 30% of the cross-sectional variation in volatility. Time series tests confirm an expected drop in volatility shortly after the earnings announcement and in most cases a positive relationship between the volatility of the stock and the volatility of interest rates.     

Intraday volatility responses to monetary policy events

This paper explores the effects of US monetary policy events on intraday volatility in the US equity markets. We examine Federal Open Market Committee (FOMC) announcements as well as real-time changes in market expectations about future policy announcements and their impact on the intraday volatility dynamics of the S&P 500 index. The analysis shows elevated intraday volatility following FOMC announcements through the market close, with a spike at the time of the announcement. We then differentiate the volatility spike by modeling an asymmetric response based on the direction of the actual target rate change. Our results suggest that the size of the volatility spike is dependent on the direction of the rate change, with expansionary monetary policy actions having a larger spike than contractionary policy actions. The duration of these volatility spikes is relatively short-lived, with the spike dampening out within 15 minutes. A more lasting impact is, however, documented for real-time changes in market expectations where the volatility spike tends to persist for at least one hour.     

Order flow and volatility: An empirical investigation

We study the relationship between order flow and volatility. To this end we develop a comprehensive framework that simultaneously controls for the effects of macro announcements and order flow on prices and the effect of macro announcements on volatility. Using high-frequency 30-year U.S. Treasury bond futures data, we find a statistically and economically significant relationship between the absolute value of order flow and volatility. Moreover, this relationship is robust, inter alia, to a number of factors including the introduction of liquidity effects, use of data measured over a different frequency, and market conditions.     

Volatility changes in European currency exchange rates due to EMS announcements

This study examines the effects of announcements concerning European Monetary Union on the exchange rate volatilities of several European currencies. It is expected that when good news is portrayed in regard to a single currency this will be considered bad news, thus eliciting a negative reaction, for the German mark. Conversely, good news for a single currency should also be good news for weaker currencies, such as the Portuguese escudo, the Italian lira, the Greek drachma, and the Spanish peseta. In terms of volatility, a reaction to good news should be a reduction in volatility, as bad news should cause an increase in volatility. In total there are 22 announcements examined from January 1986 through September 1997. The German mark is observed to experience greater increases in volatility than decreases, as does the Italian lira. Portugal and Greece appear to react more strongly to positive news in that the decreases in volatility are on average greater than the increases.     

Stock Return Volatility and Dividend Announcements

This paper is based on models presented in Kim and Verrecchia (1991a, 1991b) relating to share price volatility and the quality of announcements. It investigates the differences in informational quality between dividend cuts and dividend rises, and between interim and final dividend announcements. The results indicate that when dividends are cut, the interim announcement is perceived as being more significant than the final, whereas the reverse is true when dividends are increased. Implied standard deviations suggest that volatility is expected to peak on the day of final announcements. A peak is also expected after interim announcements of a cut in dividend, but not after announcements of an increase.     

Volatility Information Trading in the Option Market

This paper investigates informed trading on stock volatility in the option market. We construct non-market maker net demand for volatility from the trading volume of individual equity options and find that this demand is informative about the future realized volatility of underlying stocks. We also find that the impact of volatility demand on option prices is positive. More importantly, the price impact increases by 40% as informational asymmetry about stock volatility intensifies in the days leading up to earnings announcements and diminishes to its normal level soon after the volatility uncertainty is resolved.     

Scheduled domestic and US macroeconomic news and stock valuation in Europe

This paper investigates whether investors on European stock markets regard news announcements about domestic and US macroeconomic variables as an important source of information when valuing stocks. To assess the importance of scheduled domestic and US macroeconomic news announcements, implied volatilities are analyzed on the German and Finnish stock markets. The results show that the US employment report and the Federal Open Market Committee (FOMC) meeting days have a significant impact on implied volatility on both European markets. The domestic news announcements have no effect on implied volatility on either of the markets. The results indicate that the US macroeconomic news announcements are valuable sources of information on European stock markets while domestic news releases seem to be unimportant.     

Impact of fiscal stimulus on volatility: A cross-country analysis

This study investigates the short-to-medium-term impact of Covid-19-related fiscal stimulus relief packages on reducing investor uncertainty expectations in eight major economies. We use three measures of volatility to assess investor uncertainty: implied volatility, volatility index, and realized kernel volatility of ETFs in each country. The data covers a three-year period from January 2019 to December 2021. Our findings indicate an increase in all three measures of volatility in the post-Covid to pre-stimulus period, which decreases after the announcement of the stimulus packages. The results show that, on average, the stimulus announcements alleviate investor uncertainty and facilitate economic recovery. However, the effectiveness of the stimulus packages varies across countries but not across sectors. Our results remain robust to several checks, including alternate econometric specifications, such as the Arellano-Blundell-Bond estimation for dynamic panel data.