Impact of US and UK macroeconomic news announcements on the return distribution implied by FTSE-100 index options
AbstractThis study investigates the effect of scheduled US and UK macroeconomic news announcements on the return distribution implied by FTSE-100 option prices. The results provide new evidence for the whole implied return distribution being systematically affected by certain macroeconomic news announcements. After controlling the unexpected content of the news announcement for quality (good vs. bad news) it is found that good (bad) news causes implied volatility to decrease (increase), option-implied return distribution becomes less (more) left-skewed and kurtosis increases (decreases). The results are consistent with the behavioral model created by Barberis et al. [Barberis, N., Shleifer, A., and Vishny, R. (1998). A model of investor sentiment. Journal of Financial Economics, 49, 307-343.], in which good (bad) news is expected to be followed by good (bad) news.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Financial Analysis.
Volume (Year): 17 (2008)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/inca/620166
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