Public information arrival: Price discovery and liquidity in electronic limit order markets

Ryan Riordan, Andreas Storkenmaier, Martin Wagener and S. Sarah Zhang

Journal of Banking & Finance, 2013, vol. 37, issue 4, 1148-1159

Abstract: How information is translated into market prices is still an open question. This paper studies the impact of newswire messages on intraday price discovery, liquidity, and trading intensity in an electronic limit order market. We take an objective ex ante measure of the tone of a message to study the impacts of positive, negative, and neutral messages on price discovery and trading activity. As expected, we find higher adverse selection costs around the arrival of newswire messages. Negative messages are associated with higher adverse selection costs than positive or neutral messages. Liquidity increases around positive and neutral messages and decreases around negative messages. Available order book depth as well as the trading intensity increases around all news. Our results suggest that market participants possess different information gathering and processing capabilities and that negative news messages are particularly informative and induce stronger market reactions.

Keywords: Information; Liquidity; Price discovery; News; Limit order markets (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (72)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:4:p:1148-1159

DOI: 10.1016/j.jbankfin.2012.11.008

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