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Information Shocks and Liquidity Innovations

59 Pages Posted: 19 Jul 2017 Last revised: 3 Aug 2017

Will J. Armstrong

Texas Tech University - Area of Finance

Laura Cardella

Texas Tech University

Nasim Sabah

Texas Tech University - Area of Finance

Date Written: August 1, 2017

Abstract

We examine the intraday impact of predictable and measurable public information shocks on various dimensions of liquidity in a very fast and liquid market. These information shocks resolve information asymmetry, move prices in the direction of the information, and lead investors to increase liquidity as measured by quoted spreads, volume, depth, and absolute order imbalance. Moreover, price impact and effective spread are higher as trading moves prices to reflect the new information. Our findings complement recent work of Collin-Dufresne and Fos (2015) and Foucault, Hombert, and Rosu (2016) by showing how intraday liquidity measures respond to information shocks in the presence of high frequency traders.

Keywords: Liquidity, information, informed trading, high-frequency trading, market microstructure, price impact

JEL Classification: G12, G13, G14, G23

Suggested Citation

Armstrong, Will J. and Cardella, Laura and Sabah, Nasim, Information Shocks and Liquidity Innovations (August 1, 2017). Available at SSRN: https://ssrn.com/abstract=3003385

Will J. Armstrong (Contact Author)

Texas Tech University - Area of Finance ( email )

Lubbock, TX 79409
United States

Laura Cardella

Texas Tech University ( email )

Lubbock, TX 79409
United States

Md Nasim-Us Sabah

Texas Tech University - Area of Finance ( email )

Lubbock, TX 79409
United States

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