Prof. Dr. Christian Conrad and Julius Schölkopf, M.Sc. Top Econometrics Publication by AWI Researcher
Christian Conrad and Julius Schoelkopf’s paper “Long-Term Volatility Shapes the Stock Market's Sensitivity to News” (joint with Nikoleta Tushteva from the European Central Bank) is forthcoming in the prestigious Journal of Econometrics.
The paper contributes to a better understanding of how stock markets respond to macroeconomic news. The authors focus on volatility feedback as an explanation for the time-varying sensitivity of the stock market to news and for its asymmetric response to good and bad news. The main contribution is to show, both theoretically and empirically, that the strength of the volatility feedback effect critically depends on the level of long-term volatility. Specifically, when long-term volatility is high, stock returns become more sensitive to news, and the asymmetry in the response to good and bad news is most pronounced.
The research was funded by the German Federal Ministry of Education and Research (BMBF) and the Baden-Württemberg Ministry of Science, as part of Germany's Excellence Strategy.
