The impact of macroeconomic announcements on implied volatility

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Abstract:

While many studies analyse the impact of scheduled macroeconomic announcements on equity market volatility, few focus on the impact on option implied volatilities. In this study, we examine the link between German and US macroeconomic events and the implied volatility indices DAX Volatility Index (VDAX) and Chicago Board Options Exchange, CBOE Volatility Index (VIX). We find that both indices fall on announcement days, with the strongest reactions occurring during the financial crisis from 2008 to 2009. Further, we identify a volatility spillover effect and significant covariance clustering between VDAX and VIX.

Keywords: G10; G11; G14; G15; VIX and VDAX indices; bivariate VECH GARCH model; implied volatility; macroeconomic announcements

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/09603107.2011.583216

Affiliations: 1: Union Investment Chair of Asset Management, Department of Finance,Accounting and Real Estate, EBS Business School, EBS Universität für Wirtschaft und Recht, Gustav-Stresemann-Ring 3D-65189 Wiesbaden, Germany 2: Endowed Chair of Banking and Finance, Department of Finance,Accounting and Real Estate, EBS Business School, EBS Universität für Wirtschaft und Recht, Gustav-Stresemann-Ring 3D-65189 Wiesbaden, Germany 3: Deutsche Börse, Market Data and Analytics, Mergenthalerallee 61-71, 65760 Eschborn, Germany

Publication date: November 1, 2011

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