Abstract

http://ssrn.com/abstract=2227519
 
 

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Information Transmission between Financial Markets in Chicago and New York


Gregory Laughlin


University of California, Santa Cruz

Anthony Aguirre


University of California, Santa Cruz

Joseph Grundfest


Stanford University Law School

November 21, 2012

Stanford Law and Economics Olin Working Paper No. 442
Rock Center for Corporate Governance at Stanford University Working Paper No. 137

Abstract:     
High frequency trading has led to widespread eft orts to reduce information propagation delays between physically distant exchanges. Using relativistically correct millisecond-resolution tick data, we document a 3-millisecond decrease in one-way communication time between the Chicago and New York areas that occurred from April 27th, 2010 to August 17th, 2012. We attribute the first segment of this decline to the introduction of a latency-optimized fi ber optic connection in late 2010. A second phase of latency decrease can be attributed to line-of-sight microwave networks, operating primarily in the 6-11 GHz region of the spectrum, licensed during 2011 and 2012. Using publicly available information, we estimate these networks' latencies and bandwidths. We estimate the total infrastructure and 5-year operations costs associated with these latency improvements to exceed $500 million.

Number of Pages in PDF File: 19

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Date posted: March 4, 2013 ; Last revised: April 18, 2013

Suggested Citation

Laughlin, Gregory and Aguirre, Anthony and Grundfest, Joseph, Information Transmission between Financial Markets in Chicago and New York (November 21, 2012). Stanford Law and Economics Olin Working Paper No. 442; Rock Center for Corporate Governance at Stanford University Working Paper No. 137. Available at SSRN: http://ssrn.com/abstract=2227519 or http://dx.doi.org/10.2139/ssrn.2227519

Contact Information

Gregory Laughlin (Contact Author)
University of California, Santa Cruz ( email )
Santa Cruz, CA 95064
United States
831 459 3208 (Phone)
Anthony Aguirre
University of California, Santa Cruz ( email )
Santa Cruz, CA 95064
United States
Joseph A. Grundfest
Stanford University Law School ( email )
559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-723-0458 (Phone)
650-723-8229 (Fax)
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