Need for Speed: An Empirical Analysis of Hard and Soft Information in a High Frequency World

Zhang, S. Sarah

doi:10.2139/ssrn.1985951

Abstract

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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

Abstract:
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, G14

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Date posted: October 17, 2012 ; Last revised: March 9, 2013

Suggested Citation

Zhang, S. Sarah, Need for Speed: An Empirical Analysis of Hard and Soft Information in a High Frequency World (July 30, 2012). Available at SSRN: http://ssrn.com/abstract=1985951 or http://dx.doi.org/10.2139/ssrn.1985951

Contact Information

Sarah Zhang (Contact Author)

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany