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Unscheduled News and Market Dynamics

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  • JÉRÔME DUGAST

Abstract

When unscheduled news arrives, investors react with a stochastic delay yet still may exploit new information. In this context, I study the equilibrium dynamics of limit order markets. Continuous idiosyncratic liquidity shocks result in trades on both sides of the order book. News therefore arrives at random times. Following news, order flows become unbalanced and market depth is consumed, leading to positive covariance between price variability, trading volume, and order book unbalances. Holding the unconditional price variability constant, news frequency has a negative effect on both market depth and the variability‐volume covariance.

Suggested Citation

  • Jérôme Dugast, 2018. "Unscheduled News and Market Dynamics," Journal of Finance, American Finance Association, vol. 73(6), pages 2537-2586, December.
    • Handle: RePEc:bla:jfinan:v:73:y:2018:i:6:p:2537-2586
    DOI: 10.1111/jofi.12717
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    Cited by:

    1. Poutré, Cédric & Dionne, Georges & Yergeau, Gabriel, 2023. "International high-frequency arbitrage for cross-listed stocks," International Review of Financial Analysis, Elsevier, vol. 89(C).
    2. Marjolein E. Verhulst & Philippe Debie & Stephan Hageboeck & Joost M. E. Pennings & Cornelis Gardebroek & Axel Naumann & Paul van Leeuwen & Andres A. Trujillo‐Barrera & Lorenzo Moneta, 2021. "When two worlds collide: Using particle physics tools to visualize the limit order book," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(11), pages 1715-1734, November.
    3. Pierre-Olivier Weill, 2020. "The search theory of OTC markets," NBER Working Papers 27354, National Bureau of Economic Research, Inc.
    4. Degryse, Hans & Karagiannis, Nikolaos, 2019. "Priority Rules," CEPR Discussion Papers 14127, C.E.P.R. Discussion Papers.
    5. Suchismita Mishra & Le Zhao, 2021. "Order Routing Decisions for a Fragmented Market: A Review," JRFM, MDPI, vol. 14(11), pages 1-32, November.
    6. Patrick Houlihan & Germán G. Creamer, 2021. "Leveraging Social Media to Predict Continuation and Reversal in Asset Prices," Computational Economics, Springer;Society for Computational Economics, vol. 57(2), pages 433-453, February.
    7. Foucault, T., 2016. "Where are the risks in high frequency trading?," Financial Stability Review, Banque de France, issue 20, pages 53-67, April.
    8. Yuewen Xiao & Xiangkang Yin & Jing Zhao, 2020. "Jumps, News, And Subsequent Return Dynamics: An Intraday Study," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(3), pages 705-731, August.

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