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.     

Informed Options Trading Prior to Dividend Change Announcements

This paper investigates the information content of options trading prior to dividend change announcements. I find a positive (negative) relation between pre‐announcement abnormal implied volatility (IV) spread (abnormal IV skew) and cumulative abnormal stock returns around dividend change announcements. The predictive power of informed options trading is stronger for announcements of dividend reduction and when the options market is more liquid relative to the stock market and weaker when information has already been incorporated in the stock market. The predictability of informed options trading is robust to a placebo test and alternative measures of informed options trading. Overall results suggest that informed options trading predicts dividend change announcement returns.     

Options and earnings announcements: an empirical study of volatility, trading volume, open interest and liquidity

In this paper we study the impact of earnings announcements on implied volatility, trading volume, open interest and spreads in the stock options market. We find that implied volatility increases before announcement days and drops afterwards. Also option trading volume is higher around announcement days. During the days before the announcement open interest tends to increase, while it returns to regular levels afterwards. Changes in the quoted spread largely respond to higher trading volume and changes in implied volatility. The effective spread increases on the event day and on the first two days following the earnings announcement.     

货币政策公告、政策不确定性及股票市场的预公告溢价效应——来自中国市场的证据

中国人民银行周期性发布的货币政策相关公告为市场判断货币政策走向提供重要信息。较于实体经济反馈政策信息具有滞后性,股票市场是否在货币政策公告期内及时对政策消息做出反应,即存在公告效应？股票价格是否体现预期货币政策调整带来的不确定性？本文基于2011-2017年A股市场数据,研究我国股票市场在我国货币政策相关公告发布前后几日这一较短窗口区间内的市场反应。结果表明,股市指数在发布货币供应量指标的公告前几天内会出现显著为正的风险溢价,而在指标发布后溢价并不显著,这一现象我们称之为货币政策相关公告的“预公告溢价效应”。本文发现,预公告溢价的产生并非由于市场提前预期到货币政策的走向,而是来源于投资者预先获得了对政策不确定性的溢价补偿。本文进一步就防范系统性风险、从数量型货币政策工具向价格型转变等问题提出了相关政策建议。     

Interest Rate Surprises and Stock Prices

This paper examines the impact of unexpected changes in the federal funds target on stock prices from 1988 to 2001. Measures of interest rate surprises are constructed from survey data and changes in the 3-month T-bill yield. I find that surprises associated with decreases in the target cause stock prices to rise significantly. Surprises associated with increases in the target increase stock market volatility on the announcement day, with volatility reverting to pre-surprise levels on the day after the announcement. This volatility pattern is only evident since 1994. An implication is that concerns about immediate disclosure causing persistent and heightened stock market volatility might be misplaced.     

Do monetary policy announcements affect stock prices in emerging market countries? The case of Thailand

We examine the effect of monetary policy announcements in Thailand, which is one of emerging market countries in Asia, on stock prices at the firm level. We find that the expected change, rather than the unexpected change, in interest rates affects stock prices. The stock price response to the interest rate announcement is asymmetric. For instance, the relation between interest rate surprises and stock prices is conditional on the direction of the interest rate change. In general, macroeconomic conditions and firm characteristics cannot explain the stock price reaction to the announcement. In addition, stock prices of firms in different industries appear to react heterogeneously to the interest rate announcement.     

Announcement Effects and Asymmetric Volatility in Industry Stock Returns: Evidence from Taiwan

This study employs financial econometric models to examine the asymmetric volatility of equity returns in response to monetary policy announcements in the Taiwanese stock market. The meetings of the board of directors at the Central Bank of the Republic of China (Taiwan) are considered for testing the announcement effects. The asymmetric generalized autoregressive conditional heteroskedasticity (GARCH) model and the smooth transition autoregression with GARCH model are used to measure equity returns' asymmetric volatility. We conclude that the asymmetric volatility of countercyclical equity returns can be identified. Our findings support the leverage effect of stock price changes for most industry equity returns in Taiwan.     

Intraday volatility and trading volume after takeover announcements

This paper examines transactions data regarding the market's reaction to 258 takeover announcements on the Toronto Stock Exchange (TSE) from 1977 to 1989. The study analyzes volatility and volume of target firm's stock during the first trading day following a takeover announcement. A cross-sectional analysis relates this intraday volatility and volume to various aspects of a takeover announcement that proxy for the certainty of payoff to shareholders. Post-announcement volatility is highest when takeover announcements involve share exchange bids which are contested. Trading volume is highest when bids are contested and involve a large initial price change.     

Signaling safety

Contrary to signaling models’ central predictions, changes in the level of cash flows do not empirically follow changes in dividends. We use the Campbell (1991) decomposition to construct cash-flow and discount-rate news from returns and find the following: (1) both dividend changes and repurchase announcements signal changes in cash-flow volatility (in opposite directions); (2) larger cash-flow volatility changes come with larger announcement returns; and (3) neither discount-rate news, nor the level of cash-flow news, nor total stock return volatility change following dividend changes. We conclude cash-flow news—and not discount-rate news—drive payout policy, and payout policy conveys information about future cash-flow volatility.     

U.S. and Japanese macroeconomic news and stock market volatility in Asia-Pacific

I use a new comprehensive dataset to analyze the impact of ten U.S. and six Japanese macroeconomic announcements on stock market volatility in Japan, Hong Kong, South-Korea and Australia. A GARCH model that allows for multiplicative announcement effects and asymmetries is employed. Overnight conditional variances are significantly higher on announcement days and significantly lower on days before and after announcements, especially for U.S. news. The impact of announcements on implied volatilities, in contrast, is much weaker. Out-of-sample trading strategies that systematically buy delta-neutral straddles on announcement days generate statistically significant profits, but these disappear after transaction costs are taken into account.     

货币政策对中国股市连续性波动和跳跃性波动的影响研究

股票价格包括连续和跳跃两个部分,本文基于股市高频数据将中国股市的已实现波动分解为连续性波动和跳跃性波动,通过建立多元线性回归模型和Tobit模型,研究了存款准备金政策和利率政策对不同类型股市波动的影响。研究表明,存款准备金率调整的信息发布对连续性波动没有显著影响,但对跳跃性波动存在显著的影响;存款准备金率的实际调整对连续性波动、跳跃性波动均存在显著影响,但跳跃性波动更多地受到了信息发布时的影响;利率政策的调整对连续性波动和跳跃性波动存在显著影响,中国股市对利率政策变化提前作出反应。     

The options market response to accounting earnings announcements

We examine the reaction of the equity options market to accounting earnings announcements over the period 1996–2008 using changes in implied volatility to measure the options market response to earnings news. We find that positive earnings surprises and positive profit announcements produce a larger uncertainty resolution than negative earnings surprises and loss announcements. We demonstrate an inverse relation between the change in implied volatility and earnings news in a three-day window immediately after an earnings announcement. We refer to the magnitude of this relation as the ‘options market earnings response coefficient’. This ‘options market earnings response coefficient’ is stronger for both bad news announcements and positive profit announcements. We do not find any significant relation between changes in implied volatility and earnings news in the pre- or post-announcement periods. We conclude that the options market efficiently absorbs earnings information.     

Liquidity and Information Flow around Monetary Policy Announcement

We analyze the effects of monetary policy announcements on stock market liquidity using intraday data. We show that the impairment in liquidity associated with policy announcements occurs primarily after, rather than before, the announcements, and is relatively short lived, lasting about 1.5 hours. Liquidity impairment varies proportionately with the information content of the policy announcement, with larger effects associated with unscheduled announcements and scheduled announcements with larger policy surprises. Overall, our results suggest that informed traders have an information processing advantage over uninformed participants rather than access to private information.     

STOCK PRICE REACTIONS TO DIVIDEND AND EARNINGS ANNOUNCEMENTS: CONTEMPORANEOUS VERSUS NONCONTEMPORANEOUS ANNOUNCEMENTS

In this paper we examine stock price reactions to contemporaneous and noncontemporaneous dividend and earnings announcements. Overall, the stock price reaction to joint announcements is significantly greater than the reaction to just one signal. This implies that there is information content to two signals being given simultaneously, and that announcements are not perfect substitutes. Some evidence shows that the reaction to a joint announcement is approximately twice that to a noncontemporaneous announcement. On average, the stock price reaction to joint contradictory announcements is not significant. Finally, for joint announcements where only one of the two announcements is expected to affect the stock price significantly, the market reaction is determined by the nonzero signal.     

Macroeconomic announcements and asymmetric volatility in bond returns

This study analyses the impact of macroeconomic news announcements on the conditional volatility of bond returns. Using daily returns on the 1, 3, 5 and 10 year US Treasury bonds, we find that announcement shocks have a strong impact on the dynamics of bond market volatility. Our results provide empirical evidence that the bond market incorporates the implications of macroeconomic announcement news faster than other information. Moreover, after distinguishing between types of macroeconomic announcements, releases of the employment situation and producer price index are especially influential at the intermediate and long end of the yield curve, while monetary policy seem to affect short-term bond volatility.     

Corporate Financial Policy,Information, and Market Expectations: An Empirical Investigation of Dividends

This paper documents a relationship between announcements of unexpected changes in financial policy and unexpected changes in performance of the firm. Using a new methodology that combines analysis of stock price movements and earnings forecast data, the authors provide evidence that analysts revise their earnings forecasts following the announcement of an unexpected dividend change by an amount positively related to the size of the unexpected dividend change. They also provide evidence that these revisions are positively related to the change in equity value surrounding the announcement. Further, they find that these revisions are consistent with rationality. Their results therefore provide direct evidence consistent with the hypothesis that unexpected dividend changes signal information about firm performance to market participants.     

RBA monetary policy communication: The response of Australian interest rate futures to changes in RBA monetary policy

This paper examines the Australian interest rate futures market reaction to changes in Reserve Bank of Australia (RBA) monetary policy. Having determined market expectations from 30-day Interbank futures, the study finds evidence that interest rate futures react strongly to target rate announcements across the maturity spectrum, with a stronger reaction evident in short maturity futures. Further, there is evidence of an asymmetric news effect whereby volatility reacts more strongly to bad news. Disaggregation of the market reaction into target- and path-surprise factors demonstrates that the change in market expectations of future target rates plays a significant role in explaining changes in yield, particularly for bond futures. There is strong evidence that monetary policy statements drive the path-factor, while the December 2007 modification in policy communication has improved the ability of the RBA to influence market expectations.     

The Impact of Information Release on Stock Price Volatility and Trading Volume: The Rights Offering Case

This paper examines whether information released via rights offering announcements induces changes in price volatility and trading volume of underlying stock. The results of this paper provide support for the release of new information via offering announcements and evidence of its effects on price volatility and volume of underlying stock. Specifically, utilization of the announced information by investors is evidenced by greater trading volume following the announcement date than during the pre-announcement period. We interpret this result to mean that informedness dominates consensus. However, stock price volatility decreased from the pre-announcement period to the post-expiration period of rights offerings.     

Persistence of announcement effects on the intraday volatility of stock returns: Evidence from individual data

We analyze the persistence effects in the empirical relationship between announcement releases and return volatilities of four major companies of the French stock market using high frequency data over the period 1995–1999. Besides its institutional stability, this sample period avoids the econometric difficulties inherent to simultaneous news arrivals. Our approach contributes to the relevant literature in that we focus on individual stock volatilities rather than indices, we distinguish firm‐specific and macroeconomic announcements, and we endogenize both the durations of announcement effects and the response patterns of equity prices. We find that our individual volatilities are affected by a systematic market effect, calendar effects, announcements related to the firms’ macroeconomic environment and announcements related to the firms’ and their competitors’ strategic dealings and commercial outcomes. We find evidence that all volatility responses are gradual with persistence horizons ranging from one to three hours, revealing a significant degree of inefficiency of the French stock market over the period. This inefficiency can be viewed as a breeding ground for the implementation of more performant informational and trading systems that allowed markets to move towards more efficiency.     

SENSITIVITY OF INVESTOR REACTION TO MARKET DIRECTION AND VOLATILITY: DIVIDEND CHANGE ANNOUNCEMENTS

We examine whether investor reactions are sensitive to the recent direction or volatility of underlying market movements. We find that dividend change announcements elicit a greater change in stock price when the nature of the news (good or bad) goes against the grain of the recent market direction during volatile times. For example, announcements to lower dividends elicit a significantly greater decrease in stock price when market returns have been up and more volatile. Similarly, announcements to raise dividends tends to elicit a greater increase in stock price when market returns have been normal or down and more volatile, although this latter tendency lacks statistical significance. We suggest an explanation for these results that combines the implications of a dynamic rational expectations equilibrium model with behavioral considerations that link the responsiveness of investors to market direction and volatility.