Short‐lived information and order strategies: a clinical study

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to examine the order strategies of investors, in particular their use of intermarket sweep orders (ISOs), in response to a short-lived information event. Design/methodology/approach -This paper uses a natural experiment on September 8, 2008, in which a 2002 bankruptcy story of United Airlines erroneously reappears through Bloomberg terminals and cause significant price changes on the stock. The authors first provide the background information of this natural experiment and use bootstrapping methods and regression analyses to examine investors' use of intermarket sweep orders. Findings -The results show that investors use intermarket sweep orders, a unique type of liquidity-demanding limit orders, in attempts to exploit their short-lived information. In particular, those investors show aggressiveness not only in trade speed but also in trade size. These findings support the hypothesis that investors with short-lived information demand immediacy to conserve the value of their information.Research limitations/implications -The results suggest that investors on the demand side of liquidity dynamically trade off the potential adverse impact of trade-throughs with the speed their trades are executed. How limit order traders on the supply side or liquidity suppliers in general adjust to the demand-side dynamics remains a future research direction. Practical implications -This paper highlights the fragility of information transmission in financial markets and suggests that the use of intermarket sweep orders could possibly magnify the impacts of erroneous information. Originality/value -Using a natural experiment, this paper provides the first piece of empirical evidence on the use of intermarket sweep orders when investors possess short-lived information.

Trading Strategies Around Earnings Announcements

“…In addition to the choice of venue, Lei and Li [2012] and Chakravarty et al [2011] show that traders can select the order type that best satisfies their trading objective.…”

“…They find that informed institutional traders take advantage of the speed of execution of ISOs and minimize the price impact of their trades by breaking up large orders into smaller ISO trades. Lei and Li [2012] study investor order strategies in response to erroneous information about a stock that is corrected shortly thereafter. They find that regular trades account for the majority of trades in the non-event period, but ISO trades account for a majority in the mistake and correction stage.…”

The Impact of Fraudulent False Information on Equity Values

“…5 Our paper is related to a recent body of research that investigates the effect of stale information on security prices. Carvalho, Klagge and Moench (2011) and Lei and Li (2012) analyse the impact of the spread of stale/false information on the stock of United Airlines. Similarly, Huberman and Regev (2001) investigate the impact of stale information carried by the New York Times on the price and volume of EntreMed.…”