What Drives Stock Market Volatility on Days Without Macroeconomic News Releases? The Role of Aggregate Earnings News

49 Pages Posted: 26 Jul 2018 Last revised: 7 Dec 2018

See all articles by Jaewoo Kim

Jaewoo Kim

University of Oregon - Department of Accounting

Bryce Schonberger

University of Rochester - Simon Business School

Charles E. Wasley

Simon School, University of Rochester

Yucheng (John) Yang

University of Rochester - Simon Business School

Date Written: October 15, 2018

Abstract

To shed light on the economic drivers of daily equity market volatility, we use an exponential GARCH model to examine the role of earnings announcement news aggregated across firms in explaining conditional market volatility over the 1973-2016 period. We find that market volatility is positively associated with the absolute value of aggregate earnings news released on a given day and that this relation is concentrated on days without releases of key macroeconomic data (e.g., monthly employment) and for earnings announcements that convey negative aggregate earnings news early in a quarter. Perhaps most importantly, we find that the impact of aggregate earnings news on market volatility is comparable to that of key macroeconomic news releases. Additional analysis reveals that information arriving via aggregate earnings follows a GARCH process similar to that observed for daily market returns. This result provides a link between the clustered, persistent arrival of financial information (via aggregate earnings news) and underlying market volatility. Our study provides the first evidence that earnings news aggregated across firms is a systematic source of aggregate market volatility.

Keywords: stock market volatility, aggregate earnings news, exponential GARCH, macroeconomic news

JEL Classification: E44, G12, M41

Suggested Citation

Kim, Jaewoo and Schonberger, Bryce and Wasley, Charles E. and Yang, Yucheng, What Drives Stock Market Volatility on Days Without Macroeconomic News Releases? The Role of Aggregate Earnings News (October 15, 2018). 29th Annual Conference on Financial Economics & Accounting 2018. Available at SSRN: https://ssrn.com/abstract=3219384 or http://dx.doi.org/10.2139/ssrn.3219384

Jaewoo Kim

University of Oregon - Department of Accounting ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

Bryce Schonberger (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Charles E. Wasley

Simon School, University of Rochester ( email )

Rochester, NY 14627
United States
585-275-3362 (Phone)
585-442-6323 (Fax)

Yucheng Yang

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

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