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Information shocks, disagreement, and drift

Author

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  • Armstrong, Will J.
  • Cardella, Laura
  • Sabah, Nasim

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.

Suggested Citation

  • Armstrong, Will J. & Cardella, Laura & Sabah, Nasim, 2021. "Information shocks, disagreement, and drift," Journal of Financial Economics, Elsevier, vol. 140(3), pages 916-940.
    • Handle: RePEc:eee:jfinec:v:140:y:2021:i:3:p:916-940
    DOI: 10.1016/j.jfineco.2021.02.002
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    References listed on IDEAS

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    Cited by:

    1. Yin, Libo & Cao, Hong & Guo, Yumei, 2024. "The information content of Shanghai crude oil futures vs WTI benchmark: Evidence from temporal and spatial dimensions," Energy Economics, Elsevier, vol. 132(C).
    2. Ziliang Yu & Jian Yang & Robert I. Webb, 2023. "Price discovery in China's crude oil futures markets: An emerging Asian benchmark?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(3), pages 297-324, March.
    3. Sultan Alturki & Alexander Kurov, 2022. "Market inefficiencies surrounding energy announcements," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(1), pages 172-188, January.
    4. Zhao, Lu-Tao & Zheng, Zhi-Yi & Wei, Yi-Ming, 2023. "Forecasting oil inventory changes with Google trends: A hybrid wavelet decomposer and ARDL-SVR ensemble model," Energy Economics, Elsevier, vol. 120(C).
    5. Xu, Liao & Xue, Mingqi & Zhang, Xuan & Zhao, Yang, 2023. "Heterogeneously informed trading and the stock market efficiency during the COVID-19 pandemic," International Review of Financial Analysis, Elsevier, vol. 87(C).

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    More about this item

    Keywords

    Asymmetric price drift; Disagreement; Intraday news; High frequency trading;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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