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
Date Written: October 15, 2018
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: Suggested Citation