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Stale Information, Shocks, and Volatility
Author(s) -
GROPP REINT,
KADAREJA ARJAN
Publication year - 2012
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2012.00525.x
Subject(s) - unobservable , volatility (finance) , private information retrieval , public information , stock (firearms) , econometrics , implied volatility , monetary economics , business , economics , financial economics , computer science , computer security , engineering , mechanical engineering , internet privacy
We propose a new approach to measuring the effect of unobservable private information on volatility. Using intraday data, we estimate the effect of a well‐identified shock on the volatility of stock returns of European banks as a function of the quality of public information available about the banks. We hypothesize that as publicly available information becomes stale, volatility effects and its persistence increase, as private information of investors becomes more important. We find strong support for this idea in the data. We further show that stock volatility is higher just before important announcements if information is stale.