Investigation of the impact of the financial communication intensity on the conditional volatility of stock returns

The relation between information flow and asset prices behavior is one of the key issues of modern finance. Our study investigates more closely the link between frequency of information arrivals and stock return volatility. It aims precisely to test empirically the mixture of distribution hypothesis and to check whether the stock returns distribution is driven by the frequencies of information arrivals on the Paris stock Exchange (Euronext). We analyse the impact of news on volatility at the firm-level. We opt for a model with two (Markov switching) regimes of volatility that we apply to all stocks pertaining to the CAC40 index from January 1999 to December 2003. We find a positive and significant but marginally decreasing impact of the daily frequency of information arrivals on the probability to be in a state of high volatility for each of the 40 companies considered. The subsequent model for panel data allows us to conclude that this impact crucially depends on the timing and the subject of the news release.