oa Business Management Review - Firm specific news disclosure and persistence of security returns volatility: lessons for stock markets in developing countries

Volume 8, Issue 1
  • ISSN : 0856-2253



Theoretical work of Clark (1973), the empirical work of Jones et al. (1998) and Christiansen (2000) suggest that non-autocorrelated announcements should not lead to autocorrelated volatility. In this paper WI"" employ the extended GARCH (1.1) model developed by Jones et al. (1998) to examine the reaction of stock prices to the release of earnings and dividends news. Earnings and dividends news releases are of interest because they have previously been found to cause substantial stock returns volatility. A sample of 212 firms drawn from the London Stock Exchange for the period January 1990 to December 19981s chosen for analysis. The main conclusions that emerge from the analysis are summarised as follows. Firs, we document statistically significant increases in stock return volatility on news release dates. Secondly, the announcement-day shocks do not appear to increase volatility on subsequent days. This is consistent with the hypothesis that information contained in earnings and dividends news releases is incorporated more quickly into stock prices. Our results lend considerable support to the mixture distribution hypothesis of Clark (1973), and the empirical work of Jones et al. (1998) and Christiansen (2000) in that the documented autocorrelation in stock return volatility may be partly caused by clustering of information flows. Finally, we find n 0 evidence in favour of the existence of heterogeneous degrees of persistence in volatility for positive and negative announcement shocks. The research findings therefore have implications on information arrival dynamics for stock markets in developing economies like Tanzania.

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