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Abstract
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.
Dokumententyp: | Arbeitspapier |
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Name der Reihe: | AWI Discussion Paper Series |
Band: | 0739 |
Ort der Veröffentlichung: | Heidelberg |
Erstellungsdatum: | 05 Dez. 2023 14:38 |
Erscheinungsjahr: | 2023 |
Seitenanzahl: | 51 |
Institute/Einrichtungen: | Fakultät für Wirtschafts- und Sozialwissenschaften > Alfred-Weber Institut |
DDC-Sachgruppe: | 330 Wirtschaft |
Freie Schlagwörter: | event study, long- and short-term volatility, macroeconomic announcements, stock market response, time-varying risk premia, volatility feedback effect |
Schriftenreihe: | Discussion Paper Series / University of Heidelberg, Department of Economics |