Stale Information, Shocks and Volatility

45 Pages Posted: 17 Feb 2009  

Reint Gropp

Halle Institute for Economic Research

Arjan Kadareja

European Central Bank (ECB)

Multiple version iconThere are 3 versions of this paper

Date Written: February, 15 2009

Abstract

We propose a new approach to measuring the effect of unobservable private information 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 (or beliefs) of investors becomes more important. We find strong support for this idea in the data, also for alternative measures of dispersion of beliefs among investors, such as bid-ask spreads, trading volume and earnings forecasts. We argue that the results have implications for debate surrounding the opacity of banks and transparency requirements imposed on banks by regulators.

Keywords: Banks, realised volatility, public information, opacity

JEL Classification: G21, G14

Suggested Citation

Gropp, Reint and Kadareja, Arjan, Stale Information, Shocks and Volatility (February, 15 2009). Available at SSRN: https://ssrn.com/abstract=1343729 or http://dx.doi.org/10.2139/ssrn.1343729

Reint Gropp (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Arjan Kadareja

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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