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

Nikolaus Hautsch, Dieter Hess and 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. 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. -- effcient return ; macroeconomic announcements ; microstructure noise ; informational volatility

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Year of publication:	2010 ; This version: November 2010
Authors:	Hautsch, Nikolaus ; Hess, Dieter ; Veredas, David
Publisher:	Cologne : Centre for Financial Research
Subject:	Wirtschaftsinformation \| Economic information \| Ankündigungseffekt \| Announcement effect \| Börsenkurs \| Share price \| Geld-Brief-Spanne \| Bid-ask spread \| Kapitaleinkommen \| Capital income \| Informationseffizienz \| Informational efficiency \| Volatilität \| Volatility \| Noise Trading \| Noise trading \| Marktmikrostruktur \| Market microstructure \| Theorie \| Theory \| Schätzung \| Estimation \| Zinsderivat \| Interest rate derivative \| Deutschland \| Germany