Persistence of announcement effects on the intraday volatility of stock returns: Evidence from individual data

• Published date: 01 November 2017
• DOI: http://doi.org/10.1016/j.rfe.2017.03.001
• Date: 01 November 2017

Persistence of announcement effects on the intraday volatility of stock

returns: Evidence from individual data

Remzi Uctum

a,

⁎, Patricia Renou-Maissant

b

, Georges Prat

a,c

, Sylvie Lecarpentier-Moyal

d

a

EconomiX,CNRS/Universitéde Paris Ouest Nanterre laDéfense, 200 av. de la République,92001 Nanterre Cedex,France

b

CREM,CNRS/Université de Caen Normandie,UFR SEGGAT, Esplanadede la Paix, 14032 Caen Cedex, France

c

IPAG BusinessSchool, 184 bd Saint-Germain,75006 Paris, France

d

ERUDITE,Université Paris EstCréteil, Faculté de SciencesEconomiques et de Gestion,Mail des mèches, 61 av.du Général de Gaulle, 94010Créteil, France

abstractarticle info

Articlehistory:

Received13 May 2016

Receivedin revised form 18 January 2017

Accepted1 March 2017

Availableonline 7 March 2017

We analyze the persistence effects in the empirical relationship between announcement releases and return

volatilities of four majo r companies of the French stock market using hig h frequency data over the period

1995–1999.Besides its institutional stability,this sample period avoids the econometricdifficulties inherent to

simultaneous news arrivals.Our approach contributes to the relevant literature in that we focuson individual

stock volatilitiesrather than indices, we distinguishfirm-specific and macroeconomicannouncements, and we

endogenize both the durations of announcement effects and the response patterns of equity prices. We find

thatour individual volatilitiesare affected bya systematic marketeffect, calendareffects, announcementsrelated

to the firms’macroeconomicenvironmentand announcements relatedto the firms’and their competitors’stra-

tegic dealingsand commercial outcomes.We find evidence that all volatility responsesare gradual with persis-

tence horizonsranging from oneto three hours, revealinga significant degree of inefficiencyof the French stock

market over the period. This inefficiencycan be viewed as a breeding ground for the implementation of more

performantinformational and tradingsystems that allowed marketsto move towards more efficiency.

© 2017 Elsevier Inc. All rights reserved.

Keywords:

Intradayvolatility

High frequencymodelling

Persistenceof announcement effects

Firm-specificstock returns

1. Introduction

The expected future volatility of financialmarket returns is a main

element in assessing asset or portfolio ri sk and plays a key role in

derivativespricing models,trading and hedging strategiesand portfolio

allocation problems.As such, accurate measures and good forecasts of

volatility arenecessary for the implementation andevaluation of asset

pricing models. Thus, not surprisingly, much effort has been devoted

to modelingreturn volatility dynamics. In spite oftheir good in-sample

performance, standard volati lity models (GARCH-type or standard

volatility models) have not provento provide accurate volatility fore-

casts at higher than daily freque ncies.

1

However, Andersen and

Bollerslev (1998b)have documented how improved ex-post volatility

measures can be constructed when high frequency(intraday) data are

used.

Modeling high frequency financialdata requires consideringspecific

statistical properties, such as heteroscedasticity,leptokurticity, asym-

metry. Andersen and Bollerslev (1998a) provide a robust econometric

methodology for capturing the volatility components that contribute

to explaining thesevolatility patterns: the traditional ARCHeffect that

reflects the inter-day volatility, calendar effects that represent the intra-

day and intra-month structure of volatilityand the announcement ef-

fects that reflect the impact of public inf ormation on volatility.

Intraday effects are consistentwith the implications of microstructure

models (Goodhart and O'Hara, 1997; Andersen and Bollerslev, 1997,

O'Hara,2015). They involve periodicpatterns, such as marketopenings

and closingsor other significantphases withina day,which Andersen et

al. (2000)have shown that theyare adequately approximated by a Fou-

rier flexible form (Gallant,1981). As for the announcement effects,they

can be responsible of erratic jumps or irre gular patterns inherent to

asset return volatility. These announcement effects represent inves tors'

surprise to event shocks which they were n ot able to predict on the

basis of their available information.

2

Andersen and Bollerslev (1998a)

show that the calendar effect dominatesthe German Mark-Dollar spot

exchange rate volatility while the announcement effect is strong but

Reviewof Financial Economics 35 (2017)43–56

⁎Correspondingauthor.

E-mailaddresses: uctum@u-paris10.fr (R. Uctum), patricia.renou@unicaen.fr

(P. Renou-Maissant), prat@u-paris10.fr (G.Prat), sylvie.lecarpentier-moyal@u-pec.fr

(S. Lecarpentier-Moyal).

1

Foran overview on thesemodels see Bollerslevet al. (1992),Degiannakisand Xekalaki

(2004)or Engle, Focardi and Fabozzi(2008).

2

Sucha prediction failurecan be attributed to the factthat the cost of informationwas

higher than information yield in terms of a reduction in the forecast error, leading the

operatorto ignore a subset of (useful) information.An announcement effect is therefore

significant when the announced event was too costly to forecast. This interpretationis

consistent with the economically rational expe ctations theory introduced by Feige and

Pearce (1976),where the optimal information collected by the forecasterresults from a

cost-and-advantage analysisof information.

http://dx.doi.org/10.1016/j.rfe.2017.03.001

1058-3300/©2017 Elsevier Inc. All rightsreserved.

Contents listsavailable at ScienceDirect

Review of Financial Economics

journal homepage: www.elsevier.com/locate/rfe