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Stale information, shocks and volatility

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  • Gropp, Reint
  • Kadareja, Arjan

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. JEL Classification: G21, G14

Suggested Citation

  • Gropp, Reint & Kadareja, Arjan, 2006. "Stale information, shocks and volatility," Working Paper Series 686, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2006686
    Note: 56868
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    References listed on IDEAS

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    Cited by:

    1. Michael Ehrmann & Marcel Fratzscher, 2009. "Explaining Monetary Policy in Press Conferences," International Journal of Central Banking, International Journal of Central Banking, vol. 5(2), pages 42-84, June.
    2. Reint Gropp & Marco Lo Duca & Jukka Vesala, 2009. "Cross-Border Bank Contagion in Europe," International Journal of Central Banking, International Journal of Central Banking, vol. 5(1), pages 97-139, March.
    3. Wang, Lanfang & Wang, Susheng, 2021. "Unusual investor behavior under tacit and endogenous market signals," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 76-97.
    4. Andrei, Daniel & Cujean, Julien, 2017. "Information percolation, momentum and reversal," Journal of Financial Economics, Elsevier, vol. 123(3), pages 617-645.
    5. Hahn, William F. & Perry, Janet E. & Southard, Leland W., 2009. "Comparing Two Sources of Retail Meat Price Data," Economic Research Report 55958, United States Department of Agriculture, Economic Research Service.
    6. Alin Marius Andries & Elena Galasan, 2020. "Measuring Financial Contagion and Spillover Effects with a State-Dependent Sensitivity Value-at-Risk Model," Risks, MDPI, vol. 8(1), pages 1-20, January.
    7. Michael Ehrmann & David Sondermann, 2012. "The News Content of Macroeconomic Announcements: What if Central Bank Communication Becomes Stale?," International Journal of Central Banking, International Journal of Central Banking, vol. 8(3), pages 1-53, September.

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    More about this item

    Keywords

    public information; Realised volatility; transparency;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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