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Volatility jumps and macroeconomic news announcements

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  • Kam F. Chan
  • Philip Gray

Abstract

While prior literature documents a link between macroeconomic news and price jumps, this paper demonstrates two channels through which economic announcements also manifest in volatility jumps. First, there is a strong coincidence of volatility jumps with scheduled announcements. Second, the mean jump size is an asymmetric function of the news surprise, with bad news resulting in larger jumps than good news. Furthermore, realized volatility (RV) and option‐implied volatility (IV) behave very differently over the days surrounding announcements. RV increases sharply on announcement days, while IV tends to decline consistent with the resolution of heightened uncertainty embedded in option prices.

Suggested Citation

  • Kam F. Chan & Philip Gray, 2018. "Volatility jumps and macroeconomic news announcements," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(8), pages 881-897, August.
    • Handle: RePEc:wly:jfutmk:v:38:y:2018:i:8:p:881-897
    DOI: 10.1002/fut.21922
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    5. Demetrio Lacava & Giampiero M. Gallo & Edoardo Otranto, 2022. "Unconventional policies effects on stock market volatility: The MAP approach," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 71(5), pages 1245-1265, November.
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    8. Lyócsa, Štefan & Molnár, Peter & Plíhal, Tomáš & Širaňová, Mária, 2020. "Impact of macroeconomic news, regulation and hacking exchange markets on the volatility of bitcoin," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).
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