Public and Private Information in Quotes and Trades

50 Pages Posted: 12 Jan 2024 Last revised: 20 Mar 2024

See all articles by James Brugler

James Brugler

University of Melbourne - Department of Finance

Terrence Hendershott

University of California, Berkeley - Haas School of Business

Date Written: March 14, 2023

Abstract

In financial markets, traders race to react first to new public information. We identify races on public information via different traders placing identical orders at the same time. Races comprise roughly 20% of both trades and quotes. While the price impact of races is greater than non-races, most price discovery occurs in non-races. Races occur in the direction of index price movements, particularly in stocks with higher market betas. While high frequency traders cause almost all races, only half of their price discovery occurs in races. Overall, not accounting for races can lead to private information being overestimated in trades and underestimated in quotes.

Keywords: Price discovery, limit orders, arbitrage, high frequency trading

JEL Classification: G10, G12, G14

Suggested Citation

Brugler, James and Hendershott, Terrence J., Public and Private Information in Quotes and Trades (March 14, 2023). Available at SSRN: https://ssrn.com/abstract=4674014 or http://dx.doi.org/10.2139/ssrn.4674014

James Brugler (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010 3010
Australia

Terrence J. Hendershott

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
330
Abstract Views
798
Rank
170,964
PlumX Metrics