Stale information, shocks and volatility

We propose a new approach to measuring the effect of unobservable private information orbeliefs on volatility. Using high-frequency intraday data, we estimate the volatility effect of awell identified shock on the volatility of the stock returns of large European banks as afunction of the quality of available public information about the banks. We hypothesise that,as the publicly available information becomes stale, volatility effects and its persistenceshould increase, as the private information (beliefs) of investors becomes more important.