IDEAS home Printed from https://ideas.repec.org/a/taf/apfiec/v21y2011i8p545-554.html
   My bibliography  Save this article

Estimating the impact of good news on stock market volatility

Author

Listed:
  • Farooq Malik

Abstract

The literature agrees that bad news increases volatility but disagrees over the impact of good news on stock market volatility and often report it as statistically insignificant. This article shows that accounting for endogenously determined structural breaks within the asymmetric Generalized Autoregressive Conditional Heteroscedastic (GARCH) model reduces volatility persistence and good news significantly decreases volatility. However, good news does not affect volatility if structural breaks are ignored. We validate our empirical results with Monte Carlo simulations and provide an intuitive explanation for our results. Our results resolve earlier inconsistencies in the literature and have important practical implications for building accurate asset pricing models and forecasting of stock market volatility.

Suggested Citation

  • Farooq Malik, 2011. "Estimating the impact of good news on stock market volatility," Applied Financial Economics, Taylor & Francis Journals, vol. 21(8), pages 545-554.
    • Handle: RePEc:taf:apfiec:v:21:y:2011:i:8:p:545-554
    DOI: 10.1080/09603107.2010.534063
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/09603107.2010.534063
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/09603107.2010.534063?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hartwell, Christopher A., 2014. "The impact of institutional volatility on financial volatility in transition economies : a GARCH family approach," BOFIT Discussion Papers 6/2014, Bank of Finland, Institute for Economies in Transition.
    2. Worapree Maneesoonthorn & Catherine S. Forbes & Gael M. Martin, 2017. "Inference on Self‐Exciting Jumps in Prices and Volatility Using High‐Frequency Measures," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(3), pages 504-532, April.
    3. Dimitrios Kartsonakis-Mademlis & Nikolaos Dritsakis, 2022. "Asymmetric volatility transmission in Japanese stock market in the presence of structural breaks," The Japanese Economic Review, Springer, vol. 73(4), pages 647-677, October.
    4. Matthew Hood & Farooq Malik, 2013. "Is gold the best hedge and a safe haven under changing stock market volatility?," Review of Financial Economics, John Wiley & Sons, vol. 22(2), pages 47-52, April.
    5. Wenbo Ge & Pooia Lalbakhsh & Leigh Isai & Artem Lensky & Hanna Suominen, 2023. "Comparing Deep Learning Models for the Task of Volatility Prediction Using Multivariate Data," Papers 2306.12446, arXiv.org, revised Jun 2023.
    6. David Vidal-Tomás & Rocco Caferra & Gabriele Tedeschi, 2022. "The day after tomorrow: financial repercussions of COVID-19 on systemic risk," Review of Evolutionary Political Economy, Springer, vol. 3(1), pages 169-192, April.
    7. repec:zbw:bofitp:2014_006 is not listed on IDEAS
    8. Georgios Fatouros & Konstantinos Metaxas & John Soldatos & Dimosthenis Kyriazis, 2024. "Can Large Language Models Beat Wall Street? Unveiling the Potential of AI in Stock Selection," Papers 2401.03737, arXiv.org, revised Apr 2024.
    9. Ahmed, Walid M.A., 2017. "On the dynamic interactions between energy and stock markets under structural shifts: Evidence from Egypt," Research in International Business and Finance, Elsevier, vol. 42(C), pages 61-74.
    10. Hood, Matthew & Malik, Farooq, 2013. "Is gold the best hedge and a safe haven under changing stock market volatility?," Review of Financial Economics, Elsevier, vol. 22(2), pages 47-52.
    11. Hisham Al Refai & Gazi Mainul Hassan, 2018. "The Impact of Market-wide Volatility on Time-varying Risk: Evidence from Qatar Stock Exchange," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(2_suppl), pages 239-258, August.
    12. Hartwell, Christopher A., 2018. "The impact of institutional volatility on financial volatility in transition economies," Journal of Comparative Economics, Elsevier, vol. 46(2), pages 598-615.
    13. Hartwell, Christopher A., 2014. "The impact of institutional volatility on financial volatility in transition economies: a GARCH family approach," BOFIT Discussion Papers 6/2014, Bank of Finland Institute for Emerging Economies (BOFIT).
    14. Neenu C & T Mohamed Nishad, 2022. "Asymmetric Volatility and Leverage Effect in Stock Market: A Bibliometric Review," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 14(1), pages 21-34, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:21:y:2011:i:8:p:545-554. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAFE20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.