55 Pages Posted: 14 Dec 2012 Last revised: 19 Jan 2016
Date Written: January 19, 2016
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.
Keywords: News, liquidity, volume, price discovery, high frequency trading
JEL Classification: G14, D82, D83
Suggested Citation: Suggested Citation
Foucault, Thierry and Hombert, Johan and Rosu, Ioanid, News Trading and Speed (January 19, 2016). Journal of Finance, Vol. 71, pp. 335-382, 2016; HEC Paris Research Paper No. 975/2013. Available at SSRN: https://ssrn.com/abstract=2188822 or http://dx.doi.org/10.2139/ssrn.2188822