Information linkages and correlated trading
Paolo Colla () and
Antonio Mele
LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library
Abstract:
In a market with informationally connected traders, the dynamics of volume, price informativeness, price volatility, and liquidity are severely affected by the information linkages every trader experiences with his peers. We show that in the presence of information linkages among traders, volume and price informativeness increase. Moreover, we find that information linkages improve or damage market depth, and lower or boost the traders’ profits, according to whether these linkages convey positively or negatively correlated signals. Finally, our model predicts patterns of trade correlation consistent with those identified in the empirical literature: trades generated by “neighbor” traders are positively correlated and trades generated by “distant” traders are negatively correlated.
JEL-codes: G00 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2008-10-01
References: Add references at CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
http://eprints.lse.ac.uk/24439/ Open access version. (application/pdf)
Related works:
Journal Article: Information Linkages and Correlated Trading (2010) 
Working Paper: Information Linkages and Correlated Trading (2008) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24439
Access Statistics for this paper
More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().