Volatility Jumps and Macroeconomic News Announcements

Journal of Futures Markets, Forthcoming

Posted: 11 May 2018

See all articles by Kam Fong Chan

Kam Fong Chan

The University of Western Australia; Financial Research Network (FIRN)

Philip Gray

Department of Banking and Finance, Monash University

Date Written: April 1, 2018

Abstract

While prior literature documents a link between macroeconomic news and price jumps, this paper demonstrates two channels through which economic announcements also manifest in volatility jumps. First, there is a strong coincidence of volatility jumps with scheduled announcements. Second, the mean jump size is an asymmetric function of the news surprise, with bad news resulting in larger jumps than good news. Furthermore, realized volatility (RV) and optionā€implied volatility (IV) behave very differently over the days surrounding announcements. RV increases sharply on announcement days, while IV tends to decline consistent with the resolution of heightened uncertainty embedded in option prices.

Keywords: Implied Volatility; Macroeconomic News Announcements; Price Jumps; Realized Volatility; Volatility Jumps

Suggested Citation

Chan, Kam Fong and Gray, Philip, Volatility Jumps and Macroeconomic News Announcements (April 1, 2018). Journal of Futures Markets, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3170226

Kam Fong Chan (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Philip Gray

Department of Banking and Finance, Monash University ( email )

Building H
Caulfield, Victoria 3141
Australia

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