Article

 

THE IMPACT OF INVESTORS’ PRESS READING TIME ON HETEROSCEDASTICITY OF STOCK RETURNS: THE CASE OF INTERCONTINENTAL EXCHANGE  (p.65-80)

by

Chamil W. Senarathne, Wuhan University of Technology

Keywords : Press reading time, News consumption, Efficient Market Hypothesis, Information flow, EGARCH, Trading volume

JEL classification : C58, D53, E51, G12, G14, G17, Z19

Abstract

This paper examines the impact of ICE press reading time on the information flow interpretation of conditional volatility using the framework of Lamoureux and Lastrapes (1990). The intraday press reading time aggregated over a monthly time horizon is shown to provide a significant explanatory power of heteroscedasticity in Intercontinental Exchange return data. The ARCH and GARCH effects vanish when the aggregate press reading time is included in the conditional variance equation of EGARCH model. This finding suggests that the residual heteroscedasticity of ICE returns reflects the time lag between press reading and the equilibrium price determination of ICE stock. Further, the aggregate press reading time is positively and significantly related to the conditional volatility, which indicates that the amount of textual contents of news is positively related to the equilibrium price change variance. The economic importance of these findings for policymaking and government initiatives are discussed.