Early Peek Advantage? Efficient Price Discovery with Tiered Information Disclosure

48 Pages Posted: 30 Nov 2013 Last revised: 27 Feb 2017

Grace Xing Hu

University of Hong Kong - School of Economics and Finance

Jun Pan

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA); National Bureau of Economic Research (NBER); China Academy of Financial Research (CAFR)

Jiang Wang

Massachusetts Institute of Technology (MIT) - Sloan School of Management; China Academy of Financial Research (CAFR); National Bureau of Economic Research (NBER)

Date Written: October 8, 2016

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

Suggested Citation

Hu, Grace Xing and Pan, Jun and Wang, Jiang, Early Peek Advantage? Efficient Price Discovery with Tiered Information Disclosure (October 8, 2016). Second Annual Volatility Institute at NYU Shanghai (VINS) 2016. Available at SSRN: https://ssrn.com/abstract=2361311 or http://dx.doi.org/10.2139/ssrn.2361311

Grace Xing Hu (Contact Author)

University of Hong Kong - School of Economics and Finance ( email )

1108 K.K.Leung
Pokfulam Road
Hong Kong, Pokfulam HK
China
2219-4178 (Phone)

Jun Pan

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States
617-253-3083 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Jiang Wang

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E62-614
100 Main Street
Cambridge, MA 02142
United States
617-253-2632 (Phone)
617-258-6855 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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