Milidonis, Andreas, and Shaun Wang.
North American Actuarial Journal, 11 (4): 42-60.
Publication year: 2007
  • We introduce a new risk measure to capture changes in the dynamics of stock returns when new information enters the market.
  • The risk measure is based on regime-switching processes.
  • Using corporate bond rating downgrades, we show a three-fold increase in volatility of respective stock returns starting on the day of the announcement.
  • The increase in volatility is persistent for about three days.