Something in the air: Information density, news surprises, and price jumps

This paper introduces a new information density indicator to provide a more comprehensive understanding of price reactions to news and, more specifically, to the sources of jumps in financial markets. Our information density indicator, which measures the abnormal amount of news before scheduled macroeconomic announcements, is significantly related to the likelihood of price jumps and is independent of the magnitude of news surprises or pre-announcement trading activity. We therefore interpret this variable as a measure of additional uncertainty in the market, inducing diffuse beliefs among investors, which are resolved through macroeconomic news as “hard” facts.