Early News is Good News: The E ects of Market Opening on Market Volatility
نویسندگان
چکیده
In this paper we examine the characteristics of market opening news and its impact on the estimated coe cients of the conditional volatility models of the GARCH class. We nd that the di erences between the opening price of one day and the closing price of the day before have di erent characteristics when considering various stock market indices on which options are actively traded. The impact of a suitable positive-valued transformation of these di erences has the e ect of modifying the direct impact of daily innovations on volatility, and of reducing the estimated overall persistence of such innovations. The overall contribution of the variable is evaluated in an out-ofsample forecasting exercise where we obtain signi cant improvements above the simple GARCH model.
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