Information Transmission between Financial Markets in Chicago and New York

30 Pages Posted: 8 Apr 2014

See all articles by Gregory Laughlin

Gregory Laughlin

Yale University

Anthony Aguirre

University of California, Santa Cruz

Joseph Grundfest

Stanford University Law School

Multiple version iconThere are 2 versions of this paper

Date Written: May 2014

Abstract

High‐frequency trading has led to widespread efforts to reduce information propagation delays between physically distant exchanges. Using relativistically correct millisecond‐resolution tick data, we document a three millisecond decrease in one‐way communication time between the Chicago and New York areas that occurred from April 27, 2010 to August 17, 2012. We attribute the first segment of this decline to the introduction of a latency‐optimized fiber optic connection in late 2010. A second phase of latency decrease can be attributed to line‐of‐sight microwave networks, operating primarily in the 6–11 GHz region of the spectrum, licensed during 2011 and 2012. Using publicly available information, we estimate these networks' latencies, costs, and bandwidths.

Keywords: market behavior, market pricing, market structure

JEL Classification: D4

Suggested Citation

Laughlin, Gregory and Aguirre, Anthony and Grundfest, Joseph A., Information Transmission between Financial Markets in Chicago and New York (May 2014). Financial Review, Vol. 49, Issue 2, pp. 283-312, 2014, Available at SSRN: https://ssrn.com/abstract=2422135 or http://dx.doi.org/10.1111/fire.12036

Gregory Laughlin

Yale University ( email )

New Haven, CT 06520
United States
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HOME PAGE: http://astronomy.yale.edu/people/gregory-laughlin

Anthony Aguirre

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

Joseph A. Grundfest

Stanford University Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-723-0458 (Phone)
650-723-8229 (Fax)

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