Evidence that Extreme Volatility in Stock Prices is Associated with Reported News Items

46 Pages Posted: 7 Nov 2002

See all articles by Walter Dolde

Walter Dolde

University of Connecticut - Department of Finance

Rita Saad

Concordia University, Quebec - John Molson School of Business

Dogan Tirtiroglu

Kadir Has University

Date Written: December 2002

Abstract

We examine extreme volatility events for 1987-99 in five S&P sub-aggregate indices: financial, industrial, mid-cap, transport, and utility. Identified event days are those for which the ratio of subsequent to prior return variance falls into the 1% critical range of a two-tailed F test. In sharp contrast to prior literature, 63.5% of extreme volatility increases and 53.4% of decreases are associated with extraordinary reported news items. More than half are coincident for two or more sectors, but only financials and industrials are positively correlated in event timing. Economically and statistically significant price deterioration accompanies volatility increases, consistent with investors raising required returns. Price and return patterns around volatility decreases are muted.

Keywords: Volatility, variance ratio, stock returns, economic factors, event study

JEL Classification: E44, G12, G14, N22

Suggested Citation

Dolde, Walter and Saad, Rita and Tirtiroglu, Dogan, Evidence that Extreme Volatility in Stock Prices is Associated with Reported News Items (December 2002). Available at SSRN: https://ssrn.com/abstract=334602 or http://dx.doi.org/10.2139/ssrn.334602

Walter Dolde (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
One Univesity Place
Stamford, CT 06901-2315
United States
203-301-0806 (Phone)

Rita Saad

Concordia University, Quebec - John Molson School of Business ( email )

1455 De Maisonneuve Blvd. West
Montreal, Quebec H3G 1M8
Canada

Dogan Tirtiroglu

Kadir Has University ( email )

Istanbul
Turkey

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