Are Algorithmic Trades Informed? - An Empirical Analysis of Algorithmic Trading Around Earnings Announcements

46 Pages Posted: 22 Aug 2012 Last revised: 15 Sep 2015

See all articles by Alex Frino

Alex Frino

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Tina Viljoen

University of Sydney Business School

George H. K. Wang

George Mason University - Department of Finance

P. Joakim Westerholm

University of Sydney Business School; Financial Research Network (FIRN)

Hui Zheng

Discipline of Finance, The University of Sydney; Capital Markets CRC Limited

Date Written: August 20, 2012

Abstract

This study examines the impact of corporate earnings announcements on trading activity and speed of price adjustment, analyzing algorithmic and non–algorithmic trades during the immediate period pre– and post– corporate earnings announcements. We confirm that algorithms react faster and more correctly to announcements than non–algorithmic traders. During the initial surge in trading activity in the first 90 seconds after the announcement, algorithms time their trades better than non–algorithmic traders, hence algorithms tend to be profitable, while non–algorithmic traders make losing trades over the same time period. During the pre announcement period, non–algorithmic volume imbalance leads algorithmic volume imbalance, however, in the post announcement period, the direction of the lead–lag relationship is exactly reversed. Our results suggest that as algorithms are the fastest traders, their trading accelerates the information incorporation process.

Keywords: algorithmic trades [AT], execution algorithms, earnings announcements

JEL Classification: G11, G12, G14

Suggested Citation

Frino, Alex and Viljoen, Tina and Wang, George H. K. and Westerholm, P. Joakim and Zheng, Hui, Are Algorithmic Trades Informed? - An Empirical Analysis of Algorithmic Trading Around Earnings Announcements (August 20, 2012). 27th Australasian Finance and Banking Conference 2014 Paper. Available at SSRN: https://ssrn.com/abstract=2132568 or http://dx.doi.org/10.2139/ssrn.2132568

Alex Frino

The University of Sydney - Discipline of Finance ( email )

Futures Research Centre
P.O. Box H58
Sydney NSW
Australia
+61 2 9299 1809 (Phone)
+61 2 9299 1830 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Tina Viljoen

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

George H. K. Wang

George Mason University - Department of Finance ( email )

Fairfax, VA 22030
United States

P. Joakim Westerholm (Contact Author)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Hui Zheng

Discipline of Finance, The University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
+61 2 9351 3915 (Phone)
+61 2 9351 6461 (Fax)

Capital Markets CRC Limited ( email )

GPO Box 970
55 Harrington Street
Sydney, NSW 2001
Australia

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