Volatility Spillovers and the Effect of News Announcements

33 Pages Posted: 17 Jul 2010 Last revised: 11 Apr 2012

See all articles by George J. Jiang

George J. Jiang

Washington State University

Eirini Konstantinidi

The University of Manchester - Manchester Business School

George S. Skiadopoulos

University of Piraeus, Department of Banking and Financial Management; Queen Mary, University of London, School of Economics and Finance

Date Written: April 5, 2012

Abstract

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.

Keywords: Contagion, Scheduled news announcements, Unscheduled news announcements, Implied volatility, Implied volatility index,Volatility spillovers

JEL Classification: G13, G14, G15

Suggested Citation

Jiang, George and Konstantinidi, Eirini and Skiadopoulos, George and Skiadopoulos, George, Volatility Spillovers and the Effect of News Announcements (April 5, 2012). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1639845 or http://dx.doi.org/10.2139/ssrn.1639845

George Jiang

Washington State University ( email )

Department of Finance and Management Science
Carson College of Business
Pullman, WA 99-4746164
United States
509-3354474 (Phone)

HOME PAGE: http://directory.business.wsu.edu/bio.html?username=george.jiang

Eirini Konstantinidi

The University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

George Skiadopoulos (Contact Author)

Queen Mary, University of London, School of Economics and Finance

Lincoln's Inn Fields
Mile End Rd.
London, E1 4NS
United Kingdom

University of Piraeus, Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

HOME PAGE: http://https://sites.google.com/view/george-skiadopoulos

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