Volatility Spillovers and the Effect of News Announcements
George J. Jiang
Washington State University
University of Exeter Business School
George S. Skiadopoulos
University of Piraeus; Queen Mary, University of London, School of Economics and Finance; City University - Faculty of Finance - Cass Business School; University of Warwick - Warwick Business School - Financial Options Research Centre
April 5, 2012
Journal of Banking and Finance, Forthcoming
We examine the effect of U.S. and European news announcements on the spillover of volatility across U.S. and European stock markets. Using synchronously observed international implied volatility indices at a daily frequency, we find significant spillovers of implied volatility between U.S. 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.
Number of Pages in PDF File: 33
Keywords: Contagion, Scheduled news announcements, Unscheduled news announcements, Implied volatility, Implied volatility index,Volatility spillovers
JEL Classification: G13, G14, G15working papers series
Date posted: July 17, 2010 ; Last revised: April 11, 2012
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.312 seconds