Effects of Macroeconomic Announcements on Stock Returns across Volatility Regimes

Based on a simple Markov regime switching model, this article presents evidence on the effects of macroeconomic announcements on individual stocks returns. The model specification allows two regimes to be distinguished: one with high volatility and the other with low volatility. Considering the level of significance at 5%, the response of stock returns to macroeconomic announcements is much stronger in the low volatility regime. However, the effects of the Fama-French factors on individual stock returns is unambiguously significant in both regimes.