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Time lags in processing market-sensitive information. A case study

Author

Listed:
  • Alessandro Innocenti
  • Pier Malpenga
  • Lorenzo Menconi
  • Alessandro Santoni

Abstract

The paper analyses a case study of time lag in processing market-sensitive information with intraday data. On February 2011, the Italian Parliament approved the so called Milleproroghe decree issued by the Government which included, among others, a new important rule for banks transforming the deferred tax assets into tax credits. Although information on the approval of the law had been available since February 8, on February 15 the market took twelve minutes to react to the news and almost an hour to fully absorb it. This delay created significant arbitrage opportunities that can be explained with traders’ inability to process immediately technical and complex matters. Failure to comply with these cognitive limitations prevents traders from incorporating promptly new information in market prices.

Suggested Citation

  • Alessandro Innocenti & Pier Malpenga & Lorenzo Menconi & Alessandro Santoni, 2011. "Time lags in processing market-sensitive information. A case study," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0811, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.
    • Handle: RePEc:usi:depfid:0811
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    More about this item

    Keywords

    financial trading; arbitrage; information processing; cognitive limitations.;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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