Seminar with Olga Lebedeva, University of Mannheim
Upcoming Finance Seminar with Olga Lebedeva, University of Mannheim
Olga Lebedeva will present:
Trading Aggressiveness and its Implications for Market Efficiency
This paper investigates the empirical relation between an increase in trading aggressiveness after earnings announcements and the speed of price adjustment. An increase in trading aggressiveness allows for quicker price changes within a given time interval that can be beneficial if the majority of aggressive orders are informative and push the price in the direction of its new equilibrium level. However, abnormal trading aggressiveness can also slow down the adjustment process if aggressive orders are mostly used by uninformed investors to trade on their heterogeneous beliefs. In this case, quick price changes in different directions might increase intraday volatility and the probability of price overshooting. Empirical findings of this paper suggest that the latter negative effect dominates, and it is especially harmful for illiquid stocks. Adjustment times of these stocks have increased compared to the time period before aggressive orders became available.