Forecasting Market Volatility: The Role of Earnings Announcements

Publication in refereed journal

CUHK Authors

Professor YANG Yucheng (School of Accountancy)

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http://dx.doi.org/10.2308/TAR-2021-0351

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http://easyaccess.lib.cuhk.edu.hk/login?url=http://dx.doi.org/10.2308/TAR-2021-0351

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AbstractThis study examines whether information revealed by firms’ earnings announcements (EAs) forecasts short-run market-wide volatility in equity index prices. Using an exponential GARCH model that includes controls for the information in an array of macroeconomic announcements, we find that EA information aggregated across firms forecasts market volatility at daily and weekly intervals. EA information’s forecasting power is greatest when more firms announce earnings on a given day, when EAs convey negative news, and for EA information about core earnings. Out-of-sample tests confirm that forecasts incorporating EA information better predict short-run market volatility than forecasts omitting EA information. We conclude that firm-level EAs are a significant source of systematic, market-wide information relevant for predicting near-term market volatility.

Acceptance Date02/11/2023

All Author(s) ListJaewoo Kim, Bryce Schonberger, Charles Wasley, Yucheng (John) Yang

Journal nameAccounting Review

Year2024

Month7

Volume Number99

Issue Number4

PublisherAmerican Accounting Association

Pages251 - 279

ISSN0001-4826

LanguagesEnglish-United States

Most Relevant Area

Accountancy (Business)

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