Abstract

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Stale Information, Shocks and Volatility


Reint Gropp


Goethe University Frankfurt; Centre for European Economic Research (ZEW); Goethe University Frankfurt - Department of Finance

Arjan Kadareja


European Central Bank (ECB)

2007

ZEW - Centre for European Economic Research Discussion Paper No. 07-012

Abstract:     
We propose a new approach to measuring the effect of unobservable private information or beliefs on volatility. Using high-frequency intraday data, we estimate the volatility effect of a well identified shock on the volatility of the stock returns of large European banks as a function of the quality of available public information about the banks. We hypothesise that, as the publicly available information becomes stale, volatility effects and its persistence should increase, as the private information (beliefs) of investors becomes more important. We find strong support for this idea in the data. We argue that the results have implications for debate surrounding the opacity of banks and the transparency requirements that may be imposed on banks under Pillar III of the New Basel Accord.

Number of Pages in PDF File: 41

Keywords: Realised volatility, public information, transparency

JEL Classification: G21, G14

working papers series


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Date posted: March 28, 2007 ; Last revised: August 26, 2008

Suggested Citation

Gropp, Reint and Kadareja, Arjan, Stale Information, Shocks and Volatility (2007). ZEW - Centre for European Economic Research Discussion Paper No. 07-012. Available at SSRN: http://ssrn.com/abstract=971349 or http://dx.doi.org/10.2139/ssrn.971349

Contact Information

Reint Gropp (Contact Author)
Goethe University Frankfurt ( email )
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany
Centre for European Economic Research (ZEW) ( email )
P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany
Goethe University Frankfurt - Department of Finance ( email )
House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany
Arjan Kadareja
European Central Bank (ECB) ( email )
Kaiserstrasse 29
Frankfurt am Main, D-60311
Germany
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