eprintid: 34102
rev_number: 17
eprint_status: archive
userid: 3114
dir: disk0/00/03/41/02
datestamp: 2023-12-05 14:38:49
lastmod: 2023-12-07 08:48:29
status_changed: 2023-12-05 14:38:49
type: workingPaper
metadata_visibility: show
creators_name: Conrad, Christian
creators_name: Schoelkopf, Julius Theodor
creators_name: Tushteva, Nikoleta
title: Long-Term Volatility Shapes the Stock Market’s Sensitivity to News
subjects: ddc-330
divisions: i-181000
keywords: event study, long- and short-term volatility, macroeconomic announcements, stock market response, time-varying risk premia, volatility feedback effect
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.
date: 2023
id_scheme: DOI
id_number: 10.11588/heidok.00034102
schriftenreihe_cluster_id: sr-3
schriftenreihe_order: 0739
ppn_swb: 1872239560
own_urn: urn:nbn:de:bsz:16-heidok-341022
language: eng
bibsort: CONRADCHRILONGTERMVO20231123
full_text_status: public
series: AWI Discussion Paper Series
volume: 0739
place_of_pub: Heidelberg
pages: 51
citation:   Conrad, Christian ; Schoelkopf, Julius Theodor ; Tushteva, Nikoleta  (2023) Long-Term Volatility Shapes the Stock Market’s Sensitivity to News.  [Working paper]     
document_url: https://archiv.ub.uni-heidelberg.de/volltextserver/34102/7/Conrad_Schoelkopf_Tushteva_dp739_2023.pdf