Forecasting Market Volatility: The Role of Earnings Announcements
The Accounting Review, Forthcoming
29th Annual Conference on Financial Economics & Accounting 2018
53 Pages Posted: 26 Jul 2018 Last revised: 15 Nov 2023
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: Suggested Citation