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The impact of macroeconomic news on quote adjustments, noise, and informational volatility

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  • Hautsch, Nikolaus
  • Hess, Dieter
  • Veredas, David

Abstract

We study the impact of the arrival of macroeconomic news on the informational and noise-driven components in high-frequency quote processes and their conditional variances. We decompose bid and ask returns into a common ("efficient return") factor and two market-side-specific components capturing market microstructure effects. The corresponding variance components reflect information-driven and noise-induced volatilities. We find that all volatility components reveal distinct dynamics and are positively influenced by news. The proportion of noise-induced variances is highest before announcements and significantly declines thereafter. Moreover, news-affected responses in all volatility components are influenced by order flow imbalances.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 10 (October)
Pages: 2733-2746

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:10:p:2733-2746

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Keywords: Efficient return Macroeconomic announcements Microstructure noise Informational volatility;

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