BENAMAR Hedi

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We measure demand for information prior to nonfarm payroll announcements using a novel dataset consisting of clicks on news articles. We find that when information demand is high shortly before the release of the nonfarm payroll announcement, the price response of U.S. Treasury note futures to nonfarm payroll news surprises doubles. We argue that this relationship stems from the fact that market participants have more incentive to collect information when uncertainty about asset payoffs is higher, as implied by Bayesian learning models. Thus, high information demand about macroeconomic news is a proxy for high macroeconomic uncertainty.

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This thesis consists of three separate chapters. In the first chapter, I test the hypothesis that the display format of financial information affects the decisions of individual investors. I show that a more efficient display allows individuals to better manage their limit orders by minimizing the adverse selection risk incurred by using these orders. This suggests that individual investors have bounded rationality. In the second chapter, I test whether liquidity-providing trading strategies can generate profits, after transaction costs, for the active traders who implement them. I show that only individuals in the highest performance decile can persistently beat the market using highly contrarian strategies that require the massive use of limit orders. Limit-to-arbitrage seems to explain this phenomenon. In the third chapter, I study individuals' strategies around earnings announcements. I show that round-trips that are implemented one day before an announcement generate on average higher profits and are shorter in duration than those implemented in normal times. Individuals close their winning positions on the day of the announcement, which may slow down the price adjustment following the announcement.

This thesis is made of three distinct chapters. In the first chapter, I test whether the display format of financial information matters for the individual investor. I find that a more efficient information display allows investors to increase returns on their limit orders, because it becomes easier for them to mitigate the risk of adverse selection when trading with those orders. My findings suggest that retail investors have bounded rationality. In the second chapter I test whether liquidity provision to the market can be a profitable strategy, after fees, for active retail investors. I find that only individuals ranked in the top decile of performance can persistently beat the market using highly contrarian limit order strategies. Limits-to-arbitrage seem to explain why these top retail investors exploit trading opportunities before other more sophisticated arbitrageurs. In the third chapter, I study the retail trading strategies around stock earnings announcements. I find that round-trips started one day before an announcement are more profitable and much shorter in duration than those started during the non-announcement period. Retails reverse their winning trades on the event date, which can slow down the adjustment of prices to new information.