Public information arrival: Price discovery and liquidity in electronic limit order markets
AbstractHow information is translated into market prices is still an open question. This paper studies the impact of newswire messages on intraday price discovery, liquidity, and trading intensity in an electronic limit order market. We take an objective ex ante measure of the tone of a message to study the impacts of positive, negative, and neutral messages on price discovery and trading activity. As expected, we find higher adverse selection costs around the arrival of newswire messages. Negative messages are associated with higher adverse selection costs than positive or neutral messages. Liquidity increases around positive and neutral messages and decreases around negative messages. Available order book depth as well as the trading intensity increases around all news. Our results suggest that market participants possess different information gathering and processing capabilities and that negative news messages are particularly informative and induce stronger market reactions.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 37 (2013)
Issue (Month): 4 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/jbf
Information; Liquidity; Price discovery; News; Limit order markets;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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