Forecasting Market Volatility: The Role of Earnings Announcements

53 Pages Posted: 26 Jul 2018 Last revised: 15 Nov 2023

See all articles by Jaewoo Kim

Jaewoo Kim

University of Oregon - Department of Accounting

Bryce Schonberger

University of Colorado at Boulder - Leeds School of Business

Charles E. Wasley

Simon School, University of Rochester

Yucheng (John) Yang

The Chinese University of Hong Kong (CUHK) - School of Accountancy

Date Written: October 30, 2023

Abstract

This 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.

Keywords: stock market volatility; forecasting; earnings announcements; macroeconomic announcements; exponential GARCH; out-of-sample tests

JEL Classification: E44, G12, M41

Suggested Citation

Kim, Jaewoo and Schonberger, Bryce and Wasley, Charles E. and Yang, Yucheng, Forecasting Market Volatility: The Role of Earnings Announcements (October 30, 2023). The Accounting Review, Forthcoming, 29th Annual Conference on Financial Economics & Accounting 2018, Available at SSRN: https://ssrn.com/abstract=3219384 or http://dx.doi.org/10.2139/ssrn.3219384

Jaewoo Kim

University of Oregon - Department of Accounting ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

Bryce Schonberger (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Charles E. Wasley

Simon School, University of Rochester ( email )

Rochester, NY 14627
United States
585-275-3362 (Phone)
585-442-6323 (Fax)

Yucheng Yang

The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )

Shatin, N.T.
Hong Kong

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