The Impact of Macroeconomic News on Quote Adjustments, Noise, and Informational Volatility

Abstract

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. We decompose bid and ask returns 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