Multifrequency News and Stock Returns

L. E. CALVET, J. Fisher

Journal of Financial Economics

octobre 2007, vol. 86, n°1, pp.178-212

Départements : Finance

Mots clés : Multifrequency news, Volatility feedback, Learning, Long-run risks

This paper develops a parsimonious asset-pricing economy with multifrequency regime-shifts in dividend volatility. We estimate on daily U.S. equity returns tightly parameterized specifications with up to eight different persistence levels and over 250 discrete states. The likelihood improves as frequencies are added, and all versions with three or more components improve on the classic Campbell and Hentschel (1992) specification, while generating volatility feedback effects between 6 and 12 times larger. We extend the model to incorporate investor learning, and identify an endogenous tradeoff between skewness and kurtosis as information quality changes. Economies with intermediate levels of information best match the data*EQUILIBRIUM (Economics)*HEDGING (Finance)*RATIONAL expectations (Economic theory)*SECURITIES -- Prices*VOLATILITY*SECURITIES marketsAuthor-Supplied Keywords:LearningG12C22Volatility feedback