Information Shocks, Disagreement, and Drift

65 Pages Posted: 14 Jan 2019

See all articles by Will J. Armstrong

Will J. Armstrong

Texas Tech University - Area of Finance

Laura Cardella

Texas Tech University

Nasim Sabah

Texas Tech University - Area of Finance

Date Written: January 8, 2019

Abstract

We examine the effects of investor disagreement on price discovery using a recurring public information event in the highly liquid crude oil futures market, a market free of short-sale constraints. We show that prices reflect positive news within one-half second of trading, but continue to drift for five minutes when news is negative. Evidence suggests the drift arises from a systematic surge in buying pressure that impedes the price discovery process when news is negative. Our results are consistent with price drift arising from differences in investment horizon, where traders taking long positions condition trades on information beyond the news.

Keywords: price drift, heterogeneous beliefs, disagreement, liquidity, information shocks, highfrequency trading, market microstructure, price efficiency

JEL Classification: G12, G13, G14, G23

Suggested Citation

Armstrong, Will J. and Cardella, Laura and Sabah, Nasim, Information Shocks, Disagreement, and Drift (January 8, 2019). Available at SSRN: https://ssrn.com/abstract=3314221 or http://dx.doi.org/10.2139/ssrn.3314221

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

Nasim Sabah

Texas Tech University - Area of Finance ( email )

Lubbock, TX 79409
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
86
Abstract Views
944
rank
324,292
PlumX Metrics