The impact of macroeconomic announcements on risk premium and volatility of Thai Government bonds and stocks

Abstract

This paper studies the impact of macroeconomic announcements on the Thai government bond and stock returns by examining the effect on risk premiums and volatilities of government bond and stock simultaneously based on the bivariate GARCH-M estimation. This paper also examines how quickly government bond and stock markets react to new information. Finally, this paper investigates whether government bond and stock react to the information content of announcements. The types of announcements in this paper include the news about real economy, inflation, consumer confidence index, and export-import measures. The results indicate that government bond exhibits significant positive risk premium to conditional covariance on macroeconomic announcement days, while stock risk premium does not exhibit any significant change on macroeconomic announcement days. However, stock volatility indicates a significant increase on macroeconomic announcement days and remains high on the day after announcements, while government bond volatility exhibits a significant increase on the day prior to the news releases. When investigating the reaction to the information content of announcements, stock volatility increases significantly on the BOT press release on economic conditions and inflation announcement dates. Meanwhile, government bond reacts significantly to inflation announcement. GDP announcement also gener