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

See all articles by Mason Prasad

Mason Prasad

Western Sydney University - School of Business

Walid Bakry

Western Sydney University

Maria Estela Varua

Western Sydney University

Date Written: November 1, 2019

Abstract

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

Prasad, Mason and Bakry, Walid and Varua, Maria Estela, Examination of Information Release on Return Volatility: A Market and Sectoral Analysis (November 1, 2019). 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., Available at SSRN: https://ssrn.com/abstract=3568355 or http://dx.doi.org/10.2139/ssrn.3568355

Mason Prasad

Western Sydney University - School of Business ( email )

Locked Bag 1797
Penrith, NSW 2751
Australia

Walid Bakry (Contact Author)

Western Sydney University ( email )

Sydney
1 Parramatta Square, 169 Macquarie Street, Parrama
Sydney, 2751
Australia
2 9685 9372 (Phone)

Maria Estela Varua

Western Sydney University ( email )

PO Box 10
Kingswood, NSW 2747
Australia

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