Stale Information, Shocks and Volatility

41 Pages Posted: 28 Mar 2007 Last revised: 26 Aug 2008

Reint Gropp

Halle Institute for Economic Research

Arjan Kadareja

European Central Bank (ECB)

Multiple version iconThere are 3 versions of this paper

Date Written: 2007

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.

Keywords: Realised volatility, public information, transparency

JEL Classification: G21, G14

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: https://ssrn.com/abstract=971349 or http://dx.doi.org/10.2139/ssrn.971349

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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