Do Macroeconomic Announcements Cause Asymetric Volatility?
AbstractIn this paper we study the impact of macroeconomic news announcementson the conditional volatility of stock and bond returns. Using dailyreturns on the S&P 500 index, the NASDAQ index, and the 1 and 10 yearU.S. Treasury bonds, for January 1982 - August 2001, some interestingresults emerge. Announcement shocks appear to have a strong impact onthe (dynamics of) bond and stock market volatility. Our resultsprovide empirical evidence thatasymmetric volatility in the Treasurybond market can be largely explained by these macroeconomicannouncement shocks. This suggests that the asymmetric volatilityfound in government bond markets are likely due to misspecification ofthe volatility model. After including macroeconomic announcements intothe model, the asymmetry disappears. Becausefirm-specific news is themost important source of information in the stock market, theasymmetries in stock volatility do not disappear after incorporatingmacroeconomic announcements into the volatility model.
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Date of creation: 19 Nov 2002
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Asymmetry; Announcement Effects; Multivariate GARCH; Stock and Bond Market; Time-Varying Covariances;
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