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

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  • Hautsch, Nikolaus
  • Hess, Dieter E.
  • 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. 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 University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 11-06.

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Date of creation: 2011
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Handle: RePEc:zbw:cfrwps:1106

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

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