Abstract
This paper investigates the impact of macroeconomic news on the dynamics of interest rates and stock returns during low and high volatility periods. These periods are determined by estimating asset dynamics using a SWARCH process. Our results suggest that securities volatility is higher during periods of financial or economic instability. We use these results to evaluate the impact of news during low and high volatility periods using a GARCH model. News effects, especially “good” and “large” news, on interest rates are amplified during high uncertainty periods. The effect on stock returns is moderate. GARCH parameters differ strongly during both periods.
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