Volatility jumps and macroeconomic news announcements

Chan, Kam Fong; Gray, Philip

doi:10.1002/fut.21922

Cited by 19 publications

(9 citation statements)

References 75 publications

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“…Not surprisingly, a difference between low-debt and high-debt countries exists for the unconventional policy effects, with both the announcement and the implementation effect being higher in the case of FTSEMIB and IBEX35. In line with other researches, ϕ is positive (e.g., Bomfim 2003;Chan and Gray 2018;Lacava et al 2020;Shogbuyi and Steeley 2017), whereas δ is negative (see, among others, Eser and Schwaab 2016;Fratzscher et al 2016;Ghysels et al 2017;Lacava et al 2020). This leads to the first important result that volatility decreased because of the unconventional policy implementation, even if it increased on monetary policy announcement days.…”

Section: Estimation Resultssupporting

confidence: 83%

The Incidence of Spillover Effects during the Unconventional Monetary Policies Era

Lacava

Domianello

2021

JRFM

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In a context characterized by an increasing integration among financial markets, we aim to analyze whether the ECB unconventional monetary policy shields the Eurozone stock markets against spillovers of volatility from the US stock market. We augment the Markov switching Asymmetric Multiplicative Error Model (MS-AMEM) with exogenous variables to measure transmissions of volatility from the S&P500 index, on the one hand, and the announcement and implementation effects of unconventional policy, on the other hand. By estimating our model, the MS-AMEMX, on a sample of daily observations of the realized volatility of four Eurozone stock indices (CAC40, DAX30, FTSEMIB and IBEX35), we find how the increase in volatility brought about by volatility spillovers was mitigated by the implementation of unconventional policy, with a higher benefit for high-debt countries’ stock indices (FTSEMIB and IBEX35). Finally, the out-of-sample analysis certifies the suitability of our proxies also for forecasting purposes.

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Section: Estimation Resultssupporting

confidence: 83%

The Incidence of Spillover Effects during the Unconventional Monetary Policies Era

Lacava

Domianello

2021

JRFM

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“…For what concerns the unconventional policy proxies, coe cients are significant at 1% level and they enter the model with the expected sign. According to other researches in literature (see for example Bomfim (2003); Chan and Gray (2018) and Shogbuyi and Steeley (2017)) the coe cient ' of the dummy variable is positive, meaning that there is an immediate reaction in the market on announcement days. Conversely, is negative, therefore the unconventional policies implementation successfully reduces stock market volatility, as expected.…”

Section: Estimation Resultsmentioning

confidence: 90%

Measuring the Effects of Unconventional Policies on Stock Market Volatility

2020

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As a response to the Great Recession, many central banks resorted to unconventional monetary policies, in the form of a balance sheet expansion. Our research aims at analyzing the impact of the ECB policies on stock market volatility in four Eurozone countries (France, Germany, Italy and Spain) within the Multiplicative Error Model framework. We propose a model which allows us to quantify the part of market volatility depending directly on unconventional policies by distinguishing between the announcement the implementation effects. While we observe an increase in volatility on announcement days, we find a negative implementation effect, which causes a remarkable reduction in volatility in the long term. A Model Confidence Set approach finds how the forecasting power of the proxy improves significantly after the policy announcement; a multi-step ahead forecasting exercise estimates the duration of the effect, and, by shocking the policy variable, we are able to quantify the reduction in volatility which is more marked for debt-troubled countries.

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“…Furthermore, one inherent assumption utilized in this study was that intraday volatility in higher frequencies incorporates news announcements as revealed in recent studies (Chan & Gray, 2018;Kenourgios, Papadamou, & Dimitriou, 2015), Yet, even beyond the scope of this particular study, the impact of news announcements can be…”

Section: Resultsmentioning

confidence: 99%