The Impact of Macroeconomic News on Quote Adjustments, Noise, and Informational Volatility
44 Pages Posted: 16 Feb 2009 Last revised: 31 Mar 2012
Date Written: January 17, 2010
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.
Keywords: Efficient return, macroeconomic announcements, microstructure noise, informational volatility
JEL Classification: C32, G14, E44
Suggested Citation: Suggested Citation