The Impact of News on Measures of Undiversifiable Risk: Evidence from the UK Stock Market

Abstract:     
Using UK equity index data, this paper considers the impact of news on time varying measures of beta, the usual measure of undiversifiable risk. The results suggest that beta depends on two sources of news - news about the market and news about the sector. The asymmetric effect in beta is consistent across all sectors considered. Recent research provides conflicting evidence as to whether abnormalities in equity returns are a result of changes in expected returns in an efficient market or an over-reaction to new information. The evidence in this paper suggests that such abnormalities may occur as a result of changes in expected return caused by time-variation and symmetry in beta.

Number of Pages in PDF File: 33

Keywords: Stock Index, Multivariate Asymmetric GARCH, News Impact Surfaces, Conditional Beta Surfaces

JEL Classification: G12, G15

working papers series