Investors’ Order Placement Strategies Around the Time of a Market Sensitive Announcement

39 Pages Posted: 14 Dec 2012

See all articles by Marvin Wee

Marvin Wee

Australian National University (ANU); Financial Research Network (FIRN)

Philip R. Brown

UWA Business School, M250; Financial Research Network (FIRN)

Date Written: January 30, 2006

Abstract

While previous studies find little evidence of an increase in the placement of new orders before a market sensitive announcement, existing limit orders are revised significantly more often. In this study, we extend the research in three ways. First, we extend the range of announcements studied. Second, we study the aggressiveness of orders to determine the strategies of informed and uninformed traders. Third, we investigate a more powerful test of abnormal trading behaviour, to enhance the experiment. We find market sensitive announcements are associated with abnormal order flow and a significant absolute price change. We also find non-market sensitive announcements exhibit abnormal order activity and significant absolute price change, inconsistent with prior studies. We explain this result as a consequence of the nature of the statistical test used to determine whether order flow is “abnormal”. In our aggressiveness analysis, we find new and revised orders are mostly less aggressive around the time of a market sensitive announcement, reflecting the price protective strategies investors continually undertake in uncertain times. When split into different order sizes, we find evidence contrary to the stealth-trading hypothesis.

Keywords: Market sensitive announcements, Order Flow, Price Impact, Event Studies, Trading Behaviour

JEL Classification: G12, G14, G18

Suggested Citation

Wee, Marvin and Brown, Philip R., Investors’ Order Placement Strategies Around the Time of a Market Sensitive Announcement (January 30, 2006). Available at SSRN: https://ssrn.com/abstract=2188744 or http://dx.doi.org/10.2139/ssrn.2188744

Marvin Wee (Contact Author)

Australian National University (ANU) ( email )

The Australian National University
College of Business and Economics
Canberra, 2601
Australia
+61 2 61250416 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Philip R. Brown

UWA Business School, M250 ( email )

Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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