Quantitative easing announcements and high-frequency stock market volatility: Evidence from the United States

S. Corbet, J.J. Dunne, C. Larkin

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

In November 2008, the United States (US) Federal Reserve began purchasing mortgage-backed security obligations, in an attempt to support the failing housing market and improve financial market conditions. This paper provides an investigation of the volatility effects associated with regularly scheduled US Federal Reserve quantitative easing (QE) announcements, using high-frequency returns data. We find significant and substantial increases of stock market volatility immediately after a policy announcement, peaking in the hour following each Federal Open Market Committee (FOMC) announcement. The increase in volatility is largest when the market is provided with forewarning of an announcement. Unexpected announcements lead to longer short-term volatility persistence. Volatility persistence is amplified when the contents of the surprise announcement are positive. Finally, we find evidence of an increase in market returns prior to a FOMC announcement.

Original languageEnglish
Pages (from-to)321-334
Number of pages14
JournalResearch in International Business and Finance
Volume48
DOIs
Publication statusPublished - 2019

Keywords

  • High-frequency data
  • Policy announcements
  • Quantitative easing
  • Stock market volatility

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Finance

Cite this

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title = "Quantitative easing announcements and high-frequency stock market volatility: Evidence from the United States",
abstract = "In November 2008, the United States (US) Federal Reserve began purchasing mortgage-backed security obligations, in an attempt to support the failing housing market and improve financial market conditions. This paper provides an investigation of the volatility effects associated with regularly scheduled US Federal Reserve quantitative easing (QE) announcements, using high-frequency returns data. We find significant and substantial increases of stock market volatility immediately after a policy announcement, peaking in the hour following each Federal Open Market Committee (FOMC) announcement. The increase in volatility is largest when the market is provided with forewarning of an announcement. Unexpected announcements lead to longer short-term volatility persistence. Volatility persistence is amplified when the contents of the surprise announcement are positive. Finally, we find evidence of an increase in market returns prior to a FOMC announcement.",
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