What drives the sensitivity of limit order books to company announcement arrivals?

Abstract

We provide evidence that recent losses amplify order book illiquidity shocks caused by non-scheduled news. Moreover, the faster markets’ reaction to scheduled and non-scheduled news arrivals is in terms of order book illiquidity, the more illiquid the order book becomes: that is, a fast reaction is a strong reaction. Additionally, order book asymmetry observed before announcement arrivals is positively associated with the magnitude of illiquidity shocks.