Abstract
Based on full-displayed limit order book data from the electronic trading system Xetra, I study traders’ tendency to herd in their decisions to buy or to sell securities around the time of news release. In more detail, I study the impact of company-specific, real-time messages routed by Reuters to the traders’ screens on security returns and order flows. I empirically demonstrate that returns significantly react to the real-time information flow, and that traders indeed herd in their decisions to buy or sell securities if stock-specific news arrives. I further show that time- and stock-specific excess performance in returns and imbalance is considerably driven by common factors across stocks. The level of commonality in returns and in buy/sell side herding is considerably influenced by information flows. Since the market also reacts to this type of information disclosure, earnings and dividend announcements do not constitute the only source of information for determining asset prices.
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