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Stale information, shocks and volatility

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Author Info

  • Reint Gropp

    () (European Central Bank)

  • 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 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 686.

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Length: 49 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:ecb:ecbwps:20060686

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Keywords: Realised volatility; public information; transparency.;

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References

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Cited by:
  1. Michael Ehrmann & Marcel Fratzscher, 2007. "Explaining monetary policy in press conferences," Working Paper Series 767, European Central Bank.
  2. 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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