Learning and Information Dissemination in Limit Order Markets

Abstract

We examine the effect of learning of uninformed traders in a dynamic limit order market with asymmetric and short-lived information. We show that the learning is effective and valuable with respect to information acquisition, forecasting and buy-sell decision accuracies, and profit opportunity for uninformed traders. It improves market information dissemination efficiency and liquidity and makes informed traders submit more limit orders and less market orders. It becomes more effective and valuable with longer information lag, higher volatile in fundamental value, and less informed traders.