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Keywords:

  • G12;
  • G14;
  • D80

Abstract

We study volatility clustering in daily stock returns at both the index and firm levels from 1985 to 2000. We find that the relation between today's index return shock and the next period's volatility decreases when important macroeconomic news is released today and increases with the shock in today's stock market turnover. Collectively, our results suggest that volatility clustering tends to be stronger when there is more uncertainty and disperse beliefs about the market's information signal. Our findings also contribute to a better understanding of the joint dynamics of stock returns and trading volume.