Public Information and Stale Limit Orders: The Evidence
32 Pages Posted: 2 Oct 2012 Last revised: 25 Nov 2014
Date Written: November 14, 2014
Abstract
In a specialist market public information shocks may generate a sequence of transactions at stale prices, as nimble floor traders pick off obsolete limit orders. We design a test for the importance of public information in price formation around this fact. We find that removing all potentially stale limit order trades from the transactions record has no significant effect on a statistic that links price change to transactions. We use the bootstrap to calibrate this result and demonstrate that public information shocks account for a small portion of stock return variances.
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