Volume, volatility, and public news announcements

• Main Authors: BOLLERSLEV, Tim, LI, Jia, XUE, Yuan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Model Construction and Estimation; Model Evaluation; Validation and Selection; Asset Pricing; Trading volume; Bond Interest Rates; Econometrics
• Online Access: https://ink.library.smu.edu.sg/soe_research/2584; https://ink.library.smu.edu.sg/context/soe_research/article/3583/viewcontent/VolumeVol_PNA_sv.pdf
• Institution: Singapore Management University

We provide new empirical evidence for the way in which financial markets process information. Our results rely critically on high-frequency intraday price and volume data for the S&P 500 equity portfolio and U.S. Treasury bonds, along with new econometric techniques, for making inference on the relationship between trading intensity and spot volatility around public news announcements. Consistent with the predictions derived from a theoretical model in which investors agree to disagree, our estimates for the intraday volume-volatility elasticity around important news announcements are systematically below unity. Our elasticity estimates also decrease significantly with measures of disagreements in beliefs, economic uncertainty, and textual-based sentiment, further highlighting the key role played by differences-of-opinion.