Examination of Information Release on Return Volatility: A Market and Sectoral Analysis
Prasad, M., Bakry, W., Varua, M., 2020. Examination of information release on return volatility: a market and sectoral analys.Heliyon,6 (5), pp 1-14.
38 Pages Posted: 28 Apr 2020 Last revised: 28 May 2020
Date Written: November 1, 2019
This paper examines the role of information release in explaining return volatility in Australian equities. The study utilised proxies of greater accuracy than have previously been used to examine the effect of private and public information on return volatility. Analyst price targets (PTR) and Morningstar stock star ratings (MSR) were proxies for private information and Australian Securities Exchange (ASX) announcements was a proxy for public information. Analysis was conducted at both the aggregate market level and the sectoral levels. Sectoral analysis is important because Australia operates as a ‘two-speed economy’ in which some sectors perform higher than others. The limited number of studies that highlight this distinction warranted the need to perform this study. Data was collected for ASX 200–listed firms for the period 2013 to 2017. The findings provide insights into how information disclosures instigate varied volatility within the entire market and across sectors. The results also suggest that PTR have the largest effect on return volatility at both the aggregate market and the sectoral levels, thereby further indicating that investors rely heavily on this information when undertaking investment decisions. In contrast, MSR had a negligible effect, which is likely due to the lower degree of informational content. Although investors rely on these information proxies, they do not realise the diverse effect that each private information proxy has on sectoral return volatility. Public information has a minor effect on return volatility at both the aggregate market and sectoral levels. These mixed results indicate that information flow varies depending on the information type (i.e. private or public) with each sector interpreting the same information differently, as highlighted by the varying levels of volatility. The research findings provide a valuable guide to investors regarding the appropriate information proxy to generate excess returns as well as to hedge against future losses.
Keywords: sectoral return volatility, E-GARCH, GJR-GARCH, APGARCH, analyst price targets, Morningstar stock star ratings, ASX announcements
JEL Classification: G14, G15, C58
Suggested Citation: Suggested Citation