Premium
Unscheduled News and Market Dynamics
Author(s) -
DUGAST JÉRÔME
Publication year - 2018
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12717
Subject(s) - market liquidity , order (exchange) , covariance , context (archaeology) , exploit , econometrics , order book , economics , financial economics , volume (thermodynamics) , limit (mathematics) , market microstructure , monetary economics , mathematics , computer science , statistics , finance , geography , physics , mathematical analysis , computer security , archaeology , quantum mechanics
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. News therefore arrives at random times. Following news, order flows become unbalanced and market depth is consumed, leading to positive covariance between price variability, trading volume, and order book unbalances. Holding the unconditional price variability constant, news frequency has a negative effect on both market depth and the variability‐volume covariance.