Need for Speed: An Empirical Analysis of Hard and Soft Information in a High Frequency World
S. Sarah Zhang
Karlsruhe Institute of Technology
July 30, 2012
We study the role of high frequency traders (HFTs) and non-HFTs in processing hard index price information and soft news information. On one side, we show that HFTs dominate non-HFTs in processing hard information by exhibiting a stronger reaction after the hard information shocks. Thereby, they function as 'messengers' between the futures and stock markets and create a stronger linkage between both markets. We demonstrate that speed matters for hard information processing and realizing trading gains because of high short-run trading profits. On the other side, soft news information is primarily processed by non-HFTs and is incorporated into stock prices for a longer amount of time.
Number of Pages in PDF File: 50
Keywords: high-frequency trading, algorithmic trading, information, news trading, price discovery
JEL Classification: G10, G14working papers series
Date posted: October 17, 2012 ; Last revised: March 9, 2013
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