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On the Effects of Private Information on Volatility

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Anne Opschoor & Michel van der Wel & Dick van Dijk & Nick Taylor, 2012. "On the Effects of Private Information on Volatility," CREATES Research Papers 2012-08, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:create:2012-08
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    Cited by:

    1. Heejoon Han & Dennis Kristensen, 2014. "Asymptotic Theory for the QMLE in GARCH-X Models With Stationary and Nonstationary Covariates," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 32(3), pages 416-429, July.

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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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