Limited attention and news arrival in limit order markets
AbstractI model the dynamics of price adjustments to news arrival in limit order markets when investors have limited attention. Because of limited attention, investors monitor news arrival imperfectly. Consequently prices reflect news with delay. This delay shrinks when investors' attention capacity increases. The adjustment delay also decreases when the frequency of news arrival increases. When news arrival frequency is higher, the picking-off risk increases for limit orders. The order book becomes thinner and there are fewer stale limit orders to execute or cancel following news arrival. Hence, it reduces the time it takes for market prices to reflect news content.
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Bibliographic InfoPaper provided by Banque de France in its series Working papers with number 449.
Length: 60 pages
Date of creation: 2013
Date of revision:
imperfect attention; news; limit order book; price formation; market liquidity.;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-11 (All new papers)
- NEP-FMK-2013-10-11 (Financial Markets)
- NEP-MST-2013-10-11 (Market Microstructure)
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