title: Long-Term Volatility Shapes the Stock Market’s Sensitivity to News
creator: Conrad, Christian
creator: Schoelkopf, Julius Theodor
creator: Tushteva, Nikoleta
subject: ddc-330
subject: 330 Economics
description: 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.
date: 2023
type: Working paper
type: info:eu-repo/semantics/workingPaper
type: NonPeerReviewed
format: application/pdf
identifier: https://archiv.ub.uni-heidelberg.de/volltextserverhttps://archiv.ub.uni-heidelberg.de/volltextserver/34102/7/Conrad_Schoelkopf_Tushteva_dp739_2023.pdf
identifier: DOI:10.11588/heidok.00034102
identifier: urn:nbn:de:bsz:16-heidok-341022
identifier:   Conrad, Christian ; Schoelkopf, Julius Theodor ; Tushteva, Nikoleta  (2023) Long-Term Volatility Shapes the Stock Market’s Sensitivity to News.  [Working paper]     
relation: https://archiv.ub.uni-heidelberg.de/volltextserver/34102/
rights: info:eu-repo/semantics/openAccess
rights: http://archiv.ub.uni-heidelberg.de/volltextserver/help/license_urhg.html
language: eng