Top Highlights

• The arrival of news and the processing of (non-anticipated) information is a major driv- ing force of asset price volatility. Though the availability of financial high-frequency data allows researchers to study the impact of news on the price process at the micro level, the ultimate effect on volatility is still unclear.
• The objective of this paper is to address this fundamental question and to analyze what proportion of volatility changes around the arrival of macroeconomic news is due to ”informational” volatility (i.e., the volatility of the efficient price) and how much is due to noise volatility (induced by quote fluctuations around the efficient price).
• How strong is the impact of news on the information and noise components of volatility, and how much does this effect depend on the magnitude and the precision of surprises
• How large is the relative share of noise in conditional quote return volatilities, and how does it change around announcements?
• Can trading volume and net order flow (partly) explain the impact of news on informational and noise volatility?

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