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Price and trading response to public information

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  • Grothe, Magdalena

Abstract

In their seminal paper French and Roll (1986) postulate that public information affects prices before anyone can trade on it. In contrast, several models assuming heterogeneous investors show that public news releases are directly followed by high trading volume. Empirical evidence on this question is still mixed, primarily due to the lack of sufficiently precise data. This paper examines the process of price adjustment to public news in an electronic limit order market, based on very precise information from the largest European bond futures market. The results show that the price response to public news is gradual and accompanied by trading. Good (bad) news releases are followed by a sequence of positive (negative) returns and a large buying (selling) activity in the first seconds after the news release. JEL Classification: E44, G14

Suggested Citation

  • Grothe, Magdalena, 2010. "Price and trading response to public information," Working Paper Series 1177, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20101177
    Note: 1601201
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1177.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    information processing; macroeconomic announcements; market microstructure; price adjustment;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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