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Stale Information, Shocks, and Volatility

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  • REINT GROPP
  • ARJAN KADAREJA

Abstract

We propose a new approach to measuring the effect of unobservable private information or beliefs on volatility. Using high-frequency intraday data, we estimate the volatility effect of a well identified shock on the volatility of the stock returns of large European banks as a function of the quality of available public information about the banks. We hypothesise that, as the publicly available information becomes stale, volatility effects and its persistance should increase, as the private information (beliefs) of investors become more important. We find strong support for this idea in the data. We argue that the results have implications for debate surrounding the opacity of banks and the transparency requirements that may be imposed on banks under Pillar III of the New Basel Accord --

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File URL: http://hdl.handle.net/10.1111/j.1538-4616.2012.00525.x
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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 44 (2012)
Issue (Month): 6 (09)
Pages: 1117-1149

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Handle: RePEc:mcb:jmoncb:v:44:y:2012:i:6:p:1117-1149

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Michael Ehrmann & David Sondermann, 2012. "The News Content of Macroeconomic Announcements: What if Central Bank Communication Becomes Stale?," International Journal of Central Banking, International Journal of Central Banking, vol. 8(3), pages 1-53, September.
  2. Reint Gropp & Marco Lo Duca & Jukka Vesala, 2007. "Cross-Border Bank Contagion in Europe," Working Paper Series: Finance and Accounting 175, Department of Finance, Goethe University Frankfurt am Main.
  3. Hahn, William F. & Perry, Janet E. & Southard, Leland W., 2009. "Comparing Two Sources of Retail Meat Price Data," Economic Research Report 55958, United States Department of Agriculture, Economic Research Service.
  4. Michael Ehrmann & Marcel Fratzscher, 2009. "Explaining Monetary Policy in Press Conferences," International Journal of Central Banking, International Journal of Central Banking, vol. 5(2), pages 42-84, June.

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