Unscheduled News and Market Dynamics

60 Pages Posted: 8 Mar 2016 Last revised: 22 Dec 2017

See all articles by Jérôme Dugast

Jérôme Dugast

Université Paris Dauphine - Department of Finance

Date Written: December 21, 2017

Abstract

When unscheduled news arrives, investors react with a stochastic delay yet still may exploit new information. In this context, I study the equilibrium dynamics of limit order markets. Continuous idiosyncratic liquidity shocks result in trades on both sides of the order book. Then, news arrives at random times. Following news, order flows become imbalanced and market depth is consumed, leading to positive covariance between price variability, trading volume, and order book imbalances. Holding the unconditional price variability constant, news frequency has a negative effect on both market depth and the variability-volume covariance.

Keywords: news, order book, market depth, price variability, trading volume

JEL Classification: G14, D82, D83

Suggested Citation

Dugast, Jérôme, Unscheduled News and Market Dynamics (December 21, 2017). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2742195 or http://dx.doi.org/10.2139/ssrn.2742195

Jérôme Dugast (Contact Author)

Université Paris Dauphine - Department of Finance ( email )

Place du Maréchal de Lattre de Tassigny
Paris Cedex 16, 75775
France
+33 1 44 05 40 41 (Phone)

HOME PAGE: http://https://sites.google.com/view/jeromedugast/home

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