The Sound of Silence

We explore whether silent information (electronic information flows) affects future price, spread and quoted depth levels in the Nasdaq Stock Market. Controlling for the time-series properties of silent information, past price, volume, electronic communications network (ECN) volume, time-of-day effects, and firm-specific fixed effects, we find significant links between silent information measures and future market conditions. Most robustly, silent information is strongly related to changes in future price and quoted depths, but only weakly related to changes in effective spreads. When silent information is segregated by relative proximity to Nasdaq inside quotes, we find consistent relations between silent information both at and away from the inside and future changes in prices and quoted depths. Our results suggest that modern electronic trading systems may be able to effectively capture much of the information heretofore limited to face-to-face trading on the trading floor