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Measuring and Testing the Impact of News on VolatilityRobert F. EngleNew York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance Victor K. NgInternational Monetary Fund (IMF) - Research Department; National Bureau of Economic Research (NBER) April 1991 NBER Working Paper No. w3681 Abstract: This paper introduces the News Impact Curve to measure how new information is incorporated into volatility estimates. A variety of new and existing ARCH models are compared and estimated with daily Japanese stock return data to determine the shape of the News Impact Curve. New diagnostic tests are presented which emphasize the asymmetry of the volatility response to news. A partially non-parametric ARCH model is introduced to allow the data to estimate this shape. A comparison of this model with the existing models suggests that the best models are one by Glosten Jaganathan and Runkle (GJR) and Nelson's EGARCE. Similar results hold on a pre-crash sample period but are less strong.
Number of Pages in PDF File: 32 working papers seriesDate posted: June 18, 2004Suggested CitationContact Information
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