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Early News is Good News: The Effects of Market Opening on Market Volatility

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  • Gallo Giampiero M.

    ()
    (Università di Firenze; European University Institute)

  • Pacini Barbara

    ()
    (Università di Firenze)

Abstract

In this paper, we examine the characteristics of market opening news and its impact on the estimated coefficients of the conditional volatility models of the GARCH class. We find that the differences between the opening price of one day and the closing price of the day before have different characteristics when considering various stock-market indices on which options are actively traded. The impact of a suitable positive-valued transformation of these differences has the effects of modifying the direct impact of daily innovations on volatility and reducing the estimated overall persistence of such innovations. The overall contribution of the variable is evaluated in an out-of-sample forecasting exercise, where we obtain significant improvements above the simple GARCH model.

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File URL: http://www.degruyter.com/view/j/snde.1998.2.4/snde.1998.2.4.1034/snde.1998.2.4.1034.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 2 (1998)
Issue (Month): 4 (January)
Pages: 1-19

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Handle: RePEc:bpj:sndecm:v:2:y:1998:i:4:n:3

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Cited by:
  1. Gallo, Giampiero M, 2001. "Modelling the Impact of Overnight Surprises on Intra-Daily Volatility," Australian Economic Papers, Wiley Blackwell, vol. 40(4), pages 567-80, December.
  2. Chen, Chun-Hung & Yu, Wei-Choun & Zivot, Eric, 2012. "Predicting stock volatility using after-hours information: Evidence from the NASDAQ actively traded stocks," International Journal of Forecasting, Elsevier, vol. 28(2), pages 366-383.
  3. Paola Zuccolotto, 2002. "Modelling the impact of open volume on inter-trade autoregressive durations," Metron - International Journal of Statistics, Dipartimento di Statistica, Probabilità e Statistiche Applicate - University of Rome, vol. 0(3-4), pages 49-63.
  4. Giampiero M. Gallo & Yongmiao Hong & Tae-Why Lee, 2001. "Modelling the Impact of Overnight Surprises on Intra-daily Stock Returns," Econometrics Working Papers Archive wp2001_03, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".

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