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Limited attention and news arrival in limit order markets

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  • Dugast, J.

Abstract

I 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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  • Dugast, J., 2013. "Limited attention and news arrival in limit order markets," Working papers 449, Banque de France.
    • Handle: RePEc:bfr:banfra:449
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    1. Carl Chiarella & Xue-Zhong He & Lijian Wei, 2013. "Learning and Evolution of Trading Strategies in Limit Order Markets," Research Paper Series 335, Quantitative Finance Research Centre, University of Technology, Sydney.
    2. Chiarella, Carl & He, Xue-Zhong & Wei, Lijian, 2015. "Learning, information processing and order submission in limit order markets," Journal of Economic Dynamics and Control, Elsevier, vol. 61(C), pages 245-268.

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    More about this item

    Keywords

    imperfect attention; news; limit order book; price formation; market liquidity.;
    All these keywords.

    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; Information and Knowledge; Communication; Belief; Unawareness

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