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News Trading and SpeedThierry FoucaultHEC Paris - Finance Department Johan HombertHEC Paris - Finance Department Ioanid RosuHEC Paris - Finance Department June 30, 2015 Journal of Finance, Forthcoming HEC Paris Research Paper No. 975/2013 Abstract: We compare the optimal trading strategy of an informed speculator when he can trade ahead of incoming news (is "fast"), versus when he cannot (is "slow"). We find that speed matters: the fast speculator's trades account for a larger fraction of trading volume, and are more correlated with short-run price changes. Nevertheless, he realizes a large fraction of his profits from trading on long-term price changes. The fast speculator's behavior matches evidence about high frequency traders. We predict that stocks with more informative news are more liquid even though they attract more activity from informed high frequency traders.
Number of Pages in PDF File: 55 Keywords: News, liquidity, volume, price discovery, high frequency trading JEL Classification: G14, D82, D83 Date posted: December 14, 2012 ; Last revised: July 1, 2015Suggested CitationContact Information
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