Analysis of the performance of volatility-based trading strategies on scheduled news announcement days: An international equity market perspective

The effect of macroeconomic news announcements on the implied volatility of commodities: The role of survey releases

“…Among these releases, we consistently find that ADP employment and employment situation reports reduce investors' uncertainty in the crude oil and precious metals markets, while industrial production reports do it in the crude oil and gold markets. The relevance of releases on the labor market for resolving uncertainty in the crude oil and precious metal markets is in line with the results in Beber and Brandt (2006), Vähämaa (2009), Marshall et al (2012), and López and Esparcia (2021) for other asset classes. Regarding industrial production, the extensive use of crude oil and gold as inputs in the industrial sector explains its significant impact on OVX and GVZ.…”

“…Consistent with the hypothesis of uncertainty resolution on important scheduled announcement days, several studies document a significant fall in the implied volatility of various asset classes following major macroeconomic news announcements (see, e.g., Beber & Brandt, 2006; Jiang et al, 2012; López & Esparcia, 2021; Marshall et al, 2012). Remarkably, this result is mostly associated to the release of scheduled nonsurvey macroeconomic indicators (i.e., nonfarm payrolls, CPI, PPI, GDP, among others).…”

“…We observe several common spikes in the commodity volatility indices that coincide with well‐known episodes of economic and financial turmoil, including the 2008 Global Financial Crisis (GFC), the worsening of the European sovereign debt crisis, and the severe US debt downgrade in the summer of 2011, as well as the global outbreak of the COVID‐19 pandemic in the second quarter of 2020. Andrada‐Félix et al (2018), López and Esparcia (2021), and Maghyereh et al (2021) also report sharp peaks in the implied volatility of other asset types during identified crisis periods, thus reinforcing the phenomenon of increased interconnection among commodities and other major markets with respect to uncertainty when fear reigns in global financial markets. We further note the relatively enormous impact of the COVID‐19 pandemic crisis on OVX compared with the other commodities and to other crisis periods.…”

“…Regarding the impact of survey macroeconomic releases on implied volatility, the empirical evidence is limited and mostly concentrates on two types of announcements: consumer confidence and ISM manufacturing. On the one hand, Marshall et al (2012), López (2015), and López and Esparcia (2021) fail to find a statistically significant effect of consumer confidence reports on the implied volatility in the foreign‐exchange, Treasury bond, and equity markets, respectively. On the other hand, Vähämaa (2009) documents a weak, although statistically significant, negative response of the S&P 100 implied volatility to the release of ISM manufacturing.…”

“…The response of financial markets, in terms of trading activity, returns, or volatility, to scheduled news announcements has been the subject of extensive academic research. Thus, there is an important strand of literature documenting that the release of scheduled macroeconomic data significantly decreases the implied volatility in the equity (Jiang et al, 2012; López & Esparcia, 2021; Vähämaa, 2009), interest rate (Beber & Brandt, 2006; López, 2015; Sun & Sutcliffe, 2003), or foreign‐exchange markets (Kim & Kim, 2003; Marshall et al, 2012). Given that implied volatility embodies the market's expectations of future volatility for a particular asset, its fall following major scheduled macroeconomic announcements that contain relevant information on the asset pricing is interpreted in financial studies as resolution of market uncertainty (see Ederington & Lee, 1996).…”