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On the Effects of Private Information on Volatility

  • Anne Opschoor

    ()

    (Erasmus University Rotterdam and the Tinbergen Institute)

  • Michel van der Wel

    ()

    (Erasmus University Rotterdam, Tinbergen Institute, ERIM and CREATES)

  • Dick van Dijk

    ()

    (Erasmus University Rotterdam, Tinbergen Institute and ERIM.)

  • Nick Taylor

    ()

    (Cardiff Business School)

We study the impact of private information on volatility. We develop a comprehensive framework to investigate this link while controlling for the effects of both public information (such as macroeconomic news releases) and private information on prices and the effect of public information on volatility. Using high-frequency 30-year U.S. Treasury bond futures data, we find that private information, measured by order flow, is statistically and economically significant for explaining volatility. Private information is more important than public information, with the effect of an order flow shock on volatility being 18% larger than the effect of the most influential macroeconomic announcement.

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File URL: ftp://ftp.econ.au.dk/creates/rp/12/rp12_08.pdf
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Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2012-08.

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Length: 42
Date of creation: 02 2012
Date of revision:
Handle: RePEc:aah:create:2012-08
Contact details of provider: Web page: http://www.econ.au.dk/afn/

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