Early Peek Advantage?
Grace Xing Hu
University of Hong Kong - School of Economics and Finance
Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA); National Bureau of Economic Research (NBER); China Academy of Financial Research (CAFR)
Massachusetts Institute of Technology (MIT) - Sloan School of Management; China Academy of Financial Research (CAFR); National Bureau of Economic Research (NBER)
November 29, 2013
From 2007 to June 2013, a small group of fee-paying, high-speed traders receive the results of the Michigan Index of Consumer Sentiment (ICS) from Thomson Reuters at 9:54:58, two seconds before the broader release. Focusing on the trading and price behavior in E-mini S&P 500 futures, we find that this tiered information release results in highly concentrated and coordinated trading by high-speed traders during the first second of the early peek window at 9:54:58. It also leads to super fast price discovery. Most of the price adjustment in reaction to the ICS news is accomplished during the first 10% of the trades at 9:54:58, which lasts about 15 milliseconds. More important, we find no evidence of further price drift after the initial price discovery. The scope of the early peek advantage is therefore narrowly contained within a time window populated mostly by the fee-paying, high-speed traders. Outside of this narrow window, general investors trade at fully adjusted prices and is not disadvantaged by the early peek of a few. On the contrary, our further results suggest that such concentrated trading among high-speed traders with pre-arranged early peek might actually be beneficial in the sense that they help improve the efficiency of price discovery.
Number of Pages in PDF File: 46
Keywords: Market Efficiency, Multi-tiered Information Release, High-frequency Trading
JEL Classification: G14, G12working papers series
Date posted: November 30, 2013
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