Macro News and Long-Run Volatility Expectations
34 Pages Posted: 31 Dec 2019
Date Written: December 10, 2019
I propose a new model-free method for estimating long-run changes in expected volatility using VIX futures contracts. The method is applied to measure the effect on stock market volatility of scheduled macroeconomic news announcements. I find that looking at long-run changes gives qualitatively different results compared to previous studies that only look at realized variance and the VIX. I further find that FOMC announcements on average resolve uncertainty, but only during times when policy uncertainty is higher than average. Real side macro announcements increase long-run volatility during times of low policy uncertainty, but the effect is reversed during times of high policy uncertainty.
Keywords: implied volatility, macro announcements, news, volatility, fomc
JEL Classification: G12, G14, E44, C53
Suggested Citation: Suggested Citation