Is no news still good news? Volatility feedback revisited

In this paper, we examine the volatility feedback effect by replicating and extending Campbell and Hentschel (CH, 1992). Consistent with CH, we find that volatility feedback is present in the U.S. equity market and has become more pronounced in recent times. The estimated effect is between two to three times larger in the extended sample period compared to earlier periods. When we expand the analysis to Australia and New Zealand, we find similar results for the former and weaker results for the latter market. Overall, the results highlight the importance of volatility feedback for analysing the risk-return relationship. • Consistent with Campbell and Hentschel (1992) , we find a strong volatility feedback effect in equity markets. • The effect has increased over time and is more pronounced in recent periods compared to earlier periods. • No news is indeed still good news.