Public Information Arrival: Price Discovery and Liquidity in Electronic Limit Order Markets

38 Pages Posted: 4 Jun 2010 Last revised: 12 Nov 2012

See all articles by Ryan Riordan

Ryan Riordan

Smith School of Business

Andreas Storkenmaier

Karlsruhe Institute of Technology

Martin Wagener

Stuttgart Stock Exchange

S. Sarah Zhang

University of Manchester - Alliance Manchester Business School

Date Written: November 1, 2012

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.

Keywords: Information, Liquidity, Price Discovery, Firm Specific News, Limit Order Market, Information Arrival

JEL Classification: G10, G14

Suggested Citation

Riordan, Ryan and Storkenmaier, Andreas and Wagener, Martin and Zhang, Sarah, Public Information Arrival: Price Discovery and Liquidity in Electronic Limit Order Markets (November 1, 2012). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1620425 or http://dx.doi.org/10.2139/ssrn.1620425

Ryan Riordan

Smith School of Business ( email )

Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Andreas Storkenmaier (Contact Author)

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Martin Wagener

Stuttgart Stock Exchange ( email )

Börsenstraße 4
Stuttgart, 70174
Germany

Sarah Zhang

University of Manchester - Alliance Manchester Business School ( email )

Crawford House
Oxford Road
Manchester M13 9PL
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
631
Abstract Views
3,285
rank
40,442
PlumX Metrics