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

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 ma...

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Bibliographic Details
Published inJournal of banking & finance Vol. 35; no. 10; pp. 2733 - 2746
Main Authors Hautsch, Nikolaus, Hess, Dieter, Veredas, David
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.10.2011
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Banking & Finance
Subjects
Asked price
Efficient return
Efficient return Macroeconomic announcements Microstructure noise Informational volatility
Financial performance
Information
Informational volatility
Macroeconomic announcements
Macroeconomics
Microstructure noise
News
Noise
Rates of return
Studies
Volatility
C32
E44
Microstructure noise
Informational volatility
Efficient return
Macroeconomic announcements
G14
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Summary: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.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2011.03.004