Early Peek Advantage? Efficient Price Discovery with Tiered Information Disclosure

Abstract

From 2007 to June 2013, a small group of fee-paying, high-speed traders receive the Michigan Index of Consumer Sentiment (ICS) from Thomson Reuters at 9:54:58, two seconds before its 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 trading by high-speed traders during the first second of the early peek window at 9:54:58. It also leads to very fast price discovery, with most of the price adjustment in reaction to the ICS news being accomplished during the first 200 milliseconds. The scope of the early peek advantage, if any, is 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. By comparing with the pace of price discovery under uniform information release, for ICS after the suspension of early peak and for other economic indices during the same time period, we find that the tiered information release leads to significantly faster price discovery, hence higher informational efficiency of the market.

Keywords: Market Efficiency, Multi-tiered Information Release, High-frequency Trading

JEL Classification: G14, G12