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The Impact of Macroeconomic News on Quote Adjustments, Noise, and Informational Volatility

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  • Nikolaus Hautsch
  • Dieter Hess
  • David Veredas

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. Bid and ask returns are decomposed 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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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2010-005.

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Length: 37 pages
Date of creation: Jan 2010
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Handle: RePEc:hum:wpaper:sfb649dp2010-005

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Keywords: efficient return; macroeconomic announcements; microstructure noise; informational volatility;

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