Information Shocks, Disagreement, and Drift
65 Pages Posted: 14 Jan 2019
Date Written: January 8, 2019
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
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