The Handbook of News Analytics in Finance

12.5 CONCLUSIONS

In the current study, we examine the effect of the rate of information arrivals on return volatility, where the rate of information arrivals is proxied by the number of firm-specific announcements per given interval. Investigating the S&P/ASX 200 Index and the SPI 200 Futures over the period from October 2003 to September 2009, we document that the rate of information arrivals has a positive impact on volatility. This finding is consistent with the MDH, which argues that the variance of returns at a given interval is proportional to the rate of information arrivals on the market. Moreover, the level of volatility persistence is significantly reduced in both equity and futures markets after controlling for the effect of news arrivals on volatility. Thus, similar to Lamoureux and Lastrapes (1990), we argue that the phenomenon of volatility clustering reflects the serial correlation of information arrival frequencies. Our empirical results are robust with the use of univariate and multivariate conditional volatility modeling and during the period before and after the global Credit Crisis. Future research could examine the impact of different types (i.e., scheduled or unscheduled news announcements) or categories (i.e., mergers and acquisitions, earnings announcements, dividend announcements, etc.) of news on volatility. The proposed investigation is motivated by the observation of Andersen (1996) that different types of news may possess different arrival processes, ...