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Stale information, shocks and volatility

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Author Info
Gropp, Reint Eberhard
Kadareija, Arjan

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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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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 07-012.

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Date of creation: 2007
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Handle: RePEc:zbw:zewdip:5499

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Keywords: Realized volatility public information transparency

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Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michael Ehrmann & Marcel Fratzscher, 2007. "Explaining monetary policy in press conferences," Working Paper Series 767, European Central Bank. [Downloadable!]
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