2008
DOI: 10.2139/ssrn.1102682
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The Impact of Macroeconomic News on Quote Adjustments, Noise, and Informational Volatility

Abstract: We decompose bid and ask quote log returns into three linear latent components: a common factor reflecting the informative efficient return and two noisy components capturing market side specific frictions, like liquidity-induced quote revisions. The latent return components are assumed to follow a conditionally heteroscedastic VAR(1) model where the conditional means and variances of the individual components are augmented by appropriate regressors capturing the impact of news arrivals. The model is applied t… Show more

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