Volatility jumps and macroeconomic news announcements

Kam F. Chan, Philip Gray

Research output: Contribution to journalArticleResearchpeer-review

2 Citations (Scopus)

Abstract

While prior literature documents a link between macroeconomic news and price jumps, this paper demonstrates two channels through which economic announcements also manifest in volatility jumps. First, there is a strong coincidence of volatility jumps with scheduled announcements. Second, the mean jump size is an asymmetric function of the news surprise, with bad news resulting in larger jumps than good news. Furthermore, realized volatility (RV) and option-implied volatility (IV) behave very differently over the days surrounding announcements. RV increases sharply on announcement days, while IV tends to decline consistent with the resolution of heightened uncertainty embedded in option prices.

Original languageEnglish
Pages (from-to)881-897
Number of pages17
JournalJournal of Futures Markets
Volume38
Issue number8
DOIs
Publication statusPublished - 1 Aug 2018

Keywords

  • implied volatility
  • macroeconomic news announcements
  • price jumps
  • realized volatility
  • volatility jumps

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