The Sensitivity of Trading to the Cost of Information
21 Pages Posted: 15 Mar 2019
Date Written: February 25, 2019
This study examines the impact of changes in the price of the data feeds on the efficiency of price discovery. To this end, we use three exogenous events arising from the staggered increase of price quotation fee on Chicago Mercantile Exchange to test the theoretical predictions of Cespa and Foucault (2014) who note that price discovery is “…determined by the fee charged by exchanges for price information”. After controlling for known determinants of price discovery, we observe a decrease in efficiency of price discovery following the increases in the price of the data, in line with the theory.
Note: This research was funded under Corporations regulation 7.5.88 through the use of excess funds from the SFEFF.
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