Information shocks, disagreement, and drift

Will J. Armstrong; Laura Cardella; Nasim Sabah

doi:10.1016/j.jfineco.2021.02.002

Information shocks, disagreement, and drift

Will J. Armstrong, Laura Cardella, Nasim Sabah

Business Administration

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5 Scopus citations

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 trading horizons, where traders taking long positions condition trades on information beyond the news.

Original language	English
Pages (from-to)	916-940
Number of pages	25
Journal	Journal of Financial Economics
Volume	140
Issue number	3
DOIs	https://doi.org/10.1016/j.jfineco.2021.02.002
State	Published - Jun 2021

Keywords

Asymmetric price drift
Disagreement
High frequency trading
Intraday news

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10.1016/j.jfineco.2021.02.002

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title = "Information shocks, disagreement, and drift",

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 trading horizons, where traders taking long positions condition trades on information beyond the news.",

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author = "Armstrong, {Will J.} and Laura Cardella and Nasim Sabah",

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AU - Sabah, Nasim

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AB - 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 trading horizons, where traders taking long positions condition trades on information beyond the news.

KW - Asymmetric price drift

KW - Disagreement

KW - High frequency trading

KW - Intraday news

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Information shocks, disagreement, and drift

Abstract

Keywords

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