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

38 Pages Posted: 17 Oct 2012 Last revised: 16 Aug 2017

See all articles by S. Sarah Zhang

S. Sarah Zhang

University of Manchester - Alliance Manchester Business School

Date Written: 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 pro fits. 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.

Keywords: high-frequency trading, algorithmic trading, information, news trading, price discovery

JEL Classification: G10, G14

Suggested Citation

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

Sarah Zhang (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Crawford House
Oxford Road
Manchester M13 9PL
United Kingdom

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