Trading Aggressiveness and Its Implications for Market Efficiency

This paper investigates the empirical relation between trading aggressiveness after earnings announcements and the speed of price adjustment. Trading aggressiveness allows for quicker price changes within a given time interval. They are beneficial for the initial adjustment stage when aggressive traders agree on the news direction and push price more quickly to its new equilibrium level. However, as traders start to disagree about the precise level of equilibrium price, quick price changes in different directions increase intraday volatility and might slow down adjustment process. This paper shows that the latter effect dominates, and it is especially harmful for illiquid stocks.