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Public Information Arrival: Price Discovery and Liquidity in Electronic Limit Order MarketsRyan RiordanUniversity of Ontario Institute of Technology - Faculty of Business and Information Technology Andreas StorkenmaierKarlsruhe Institute of Technology Martin WagenerKarlsruhe Institute of Technology S. Sarah ZhangKarlsruhe Institute of Technology November 1, 2012 Journal of Banking and Finance, Forthcoming 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 di erent information gathering and processing capabilities and that negative news messages are particularly informative and induce stronger market reactions.
Number of Pages in PDF File: 38 Keywords: Information, Liquidity, Price Discovery, Firm Specific News, Limit Order Market, Information Arrival JEL Classification: G10, G14 working papers seriesDate posted: June 4, 2010 ; Last revised: November 12, 2012Suggested CitationContact Information
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