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Volatility spillovers and the effect of news announcements

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Listed author(s):
  • Jiang, George J.
  • Konstantinidi, Eirini
  • Skiadopoulos, George

Abstract

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.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 36 (2012)
Issue (Month): 8 ()
Pages: 2260-2273

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Handle: RePEc:eee:jbfina:v:36:y:2012:i:8:p:2260-2273
DOI: 10.1016/j.jbankfin.2012.04.006
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

Keywords: Contagion; Scheduled news announcements; Unscheduled news announcements; Implied volatility; Implied volatility index; Volatility spillovers;

Find related papers by JEL classification:

  • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
  • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
  • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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