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

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  • Hautsch, Nikolaus
  • Hess, Dieter E.
  • Veredas, David

Abstract

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. Bid and ask returns are decomposed 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.

Suggested Citation

  • Hautsch, Nikolaus & Hess, Dieter E. & Veredas, David, 2010. "The impact of macroeconomic news on quote adjustments, noise, and informational volatility," SFB 649 Discussion Papers 2010-005, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2010-005
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    More about this item

    Keywords

    efficient return; macroeconomic announcements; microstructure noise; informational volatility;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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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