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Stale information, shocks and volatility

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  • Gropp, Reint
  • Kadareja, Arjan

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 persistence should increase, as the private information (beliefs) of investors becomes 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. JEL Classification: G21, G14

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0686.

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Date of creation: Oct 2006
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Handle: RePEc:ecb:ecbwps:20060686

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Keywords: public information; Realised volatility; transparency;

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Citations

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Cited by:
  1. Ehrmann, Michael & Fratzscher, Marcel, 2007. "Explaining monetary policy in press conferences," Working Paper Series 0767, European Central Bank.
  2. Reint Gropp & Marco Lo Duca & Jukka Vesala, 2009. "Cross-Border Bank Contagion in Europe," International Journal of Central Banking, International Journal of Central Banking, vol. 5(1), pages 97-139, March.
  3. 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.
  4. 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.

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