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

  • Nikolaus Hautsch
  • Dieter Hess
  • David Veredas

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. We decompose bid and ask returns 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 ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/136190.

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Date of creation: 2011
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Publication status: Published in: Journal of banking & finance (2011) v.35 n° 10,p.2733-2746
Handle: RePEc:ulb:ulbeco:2013/136190
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