Overnight information and stochastic volatility: A study of European and US stock exchanges

This paper provides a comprehensive evaluation of the predictive ability of information accumulated during nontrading hours for a set of European and US stock indexes. We introduce a stochastic volatility model, which conditions on lagged overnight information, distinguishes between the nontrading p...

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Bibliographic Details
Published inJournal of banking & finance Vol. 32; no. 2; pp. 251 - 268
Main Author Tsiakas, Ilias
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.02.2008
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Banking & Finance
Subjects
Bayesian analysis
Bayesian MCMC estimation
Comparative analysis
Europe
Financial information
Holidays & special occasions
International capital market
Opening call auction
Overnight information
Securities trading
Stochastic models
Stochastic processes
Stochastic volatility
Stock exchange
Stock exchanges
Studies
Time
U.S.A
Volatility
United States > US
Europe
C53
Bayesian MCMC estimation
Overnight information
Stochastic volatility
G15
G14
Opening call auction
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Summary:This paper provides a comprehensive evaluation of the predictive ability of information accumulated during nontrading hours for a set of European and US stock indexes. We introduce a stochastic volatility model, which conditions on lagged overnight information, distinguishes between the nontrading periods of weeknights, weekends, holidays and long weekends, and allows for an asymmetric leverage effect on the impact of overnight news. We implement Bayesian methods for estimation and ranking of the empirical models, and find two key results: (i) there is substantial predictive ability in financial information accumulated during nontrading hours; and (ii) the performance of stochastic volatility models improves considerably by separating the asymmetric impact of positive and negative news made available over weeknights, weekends, holidays and long weekends.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2007.03.008