The impact of news announcements on volatility spillovers: International evidence from implied volatility markets

This paper investigates the role of scheduled news announcements in explaining the transmission of volatility, both within European markets and across U.S. and European ones. To this end, a novel approach is taken by employing a set of widely followed implied volatility indices. Aggregate, regional, and individual event dummies and surprise measures for U.S. and European news announcements are constructed. We find that implied volatility spillovers exist between U.S. and European markets and within European countries. Furthermore, these volatility linkages continue to show up even after the effect of news announcements is taken into account. In this case, aggregate and regional releases account partially for the reported volatility spillovers. Finally, aggregate and regional releases affect also the magnitude of volatility spillovers when their content is considered. These findings are consistent with the market efficiency hypothesis for option markets. JEL Classification: G13, G14, G15