Impact of Algorithmic Trading on Speed of Adjustment to New Information: Evidence from Interest Rate Derivatives
23 Pages Posted: 11 Mar 2020
Date Written: December 11, 2019
This study examines the impact of algorithmic trading (AT) on the speed of adjustment and price discovery during scheduled macroeconomic announcements for interest rate derivatives. In February 2012, the Australian Securities Exchange (ASX) introduced co-location services for futures traders. This change in market structure increases AT and, in this study, we examine price efficiency for both exchange-traded futures and over-the-counter (OTC)-traded swaps in the pre- and post-AT periods. Our results demonstrate that, in the presence of AT, the speed of adjustment to new information has improved for both futures and swaps. In addition, we find that the price discovery contribution of the futures market improves in the post-AT period, with this improvement significant for announcement days. We conclude that AT stimulates market adjustment to new information and enhances the price discovery of futures on days with scheduled macroeconomic releases.
Keywords: Microstructure; Sydney Futures Exchange; Timezones; Information Announcements
JEL Classification: G10, G14, G15
Suggested Citation: Suggested Citation