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Long-term volatility shapes the stock market’s sensitivity to news

We show that the S&P 500’s instantaneous response to surprises in U.S. macroeconomic announcements depends on the level of long-term stock market volatility. When long-term volatility is high, stock returns are more sensitive to news, and there is a pronounced asymmetry in the response to good a...

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Bibliographic Details
Main Authors: Conrad, Christian (Author) , Schölkopf, Julius (Author) , Tushteva, Nikoleta (Author)
Format: Book/Monograph Working Paper
Language:English
Published: Heidelberg Universitätsbibliothek Heidelberg 05 Dez. 2023
Series:AWI discussion paper series no. 739 (November 2023)
In: AWI discussion paper series (no. 739 (November 2023))

DOI:10.11588/heidok.00034102
Subjects:
Graue Literatur
Online Access:Resolving-System, kostenfrei: https://nbn-resolving.de/urn:nbn:de:bsz:16-heidok-341022
Resolving-System, kostenfrei: https://doi.org/10.11588/heidok.00034102
Verlag, kostenfrei, Volltext: http://www.ub.uni-heidelberg.de/archiv/34102
Verlag, kostenfrei: https://archiv.ub.uni-heidelberg.de/volltextserver/34102/7/Conrad_Schoelkopf_Tushteva_dp739_2023.pdf
Resolving-System, kostenfrei: https://nbn-resolving.org/urn:nbn:de:bsz:16-heidok-341022
Langzeitarchivierung Nationalbibliothek, kostenfrei: https://d-nb.info/1312277459/34
Resolving-System, kostenfrei: https://hdl.handle.net/10419/283465
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Author Notes:Christian Conrad, Julius Theodor Schoelkopf and Nikoleta Tushteva
Description
Summary:We show that the S&P 500’s instantaneous response to surprises in U.S. macroeconomic announcements depends on the level of long-term stock market volatility. When long-term volatility is high, stock returns are more sensitive to news, and there is a pronounced asymmetry in the response to good and bad news. We explain this by combining the Campbell-Shiller log-linear present value framework with a two-component volatility model for the conditional variance of cash flow news and allowing for volatility feedback. In our model, innovations to the long-term volatility component are the most important driver of discount rate news. Large announcement surprises lead to upward revisions in future required returns, which dampens/amplifies the effect of good/bad news.
Physical Description:Online Resource
DOI:10.11588/heidok.00034102

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