Information Linkages and Correlated Trading

Antonio Mele
Authors registered in the RePEc Author Service: Paolo Colla ()

FMG Discussion Papers from Financial Markets Group

Abstract: In a market with informationally connected traders, the dynamics of volume, price informativeness, price volatility, and liquidity are severely affected by the information linkages every trader experiences with his peers. We show that in the presence of information linkages among traders, volume and price informativeness increase. Moreover, we find that information linkages improve or damage market depth, and lower or boost the traders' profits, according to whether these linkages convey positively or negatively correlated signals. Finally, our model predicts patterns of trade correlation consistent with those identified in the empirical literature: trades generated by neighbor traders are positively correlated and trades generated by distant traders are negatively correlated.

Date: 2008-10
New Economics Papers: this item is included in nep-mst
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/dp620.pdf (application/pdf)

Related works:
Journal Article: Information Linkages and Correlated Trading (2010)
Working Paper: Information linkages and correlated trading (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fmg:fmgdps:dp620

Access Statistics for this paper

More papers in FMG Discussion Papers from Financial Markets Group
Bibliographic data for series maintained by The FMG Administration ().