Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 14, 2013 erstellt
Description:
I extend the sequential trade model of market-making developed by Glosten and Milgrom (1985) to a highly stylized form and obtain the following theoretical predictions. First, a stock with a lower firm-value variation is more liquid, i.e., is traded with a narrower bid-ask spread. Second, whether stocks associated with stronger public news signals have better stock liquidity, depends on a critical condition regarding the relative number of uninformed/informed traders, and the information content of public news events. Third, stocks associated with more public news signals have less volatile transaction liquidity. Fourth, the reduction on liquidity volatility due to greater news strength, will be less significant for stocks with low firm value variations. Although my model predictions are in line with some extant empirical work, it indicates that there is still room for more in-depth empirical studies