Time Lags in Processing Market-Sensitive Information:
A Case Study

Abstract

This article analyzes a case study of time lag in processing market-sensitive information with intraday data. On February 2011, the Italian Parliament approved the government’s so-called Milleproroghe decree, which included, among others, a new important rule for banks transforming deferred-tax assets into tax credits. Although information on the law’s approval became available on February 8, on February 15 the market took 12 minutes to react to the news and almost an hour to fully absorb it. This delay created significant arbitrage opportunities that can be explained by traders’ inability to immediately process technical and complex matters. Failure to comply with these cognitive limitations prevents traders from promptly incorporating new information in market prices.