Cognitive impairment in schizophrenia is an important predictor of clinical and social outcome. In this preliminary study, the correlation between cognitive status and deficits in mismatch negativity (MMN) generation was explored. The MMN response to tone duration deviants was recorded using a new stimulation protocol with continuously changing ('roving') standard stimuli in order to measure the effect of standard repetitions on MMN (memory trace effect). Cognitive status of the patient group (n=28) was assessed using neuropsychological screening. Healthy participants (n=20) served as age-matched comparison group. In patients, MMN amplitude in frontal electrodes as well as the MMN memory trace effect was diminished compared to controls. While both measures were inversely related to patient's age and disease severity, only the MMN memory trace effect was robustly correlated with the degree of neuropsychological impairment. This suggests that ERP measures of auditory system adaptability more appropriately characterise the pathophysiological processes underlying cognitive impairment in schizophrenia than static measures of ERP magnitude.