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Rent seeking by low-latency traders: evidence from trading on macroeconomic announcements

journal contribution
posted on 2018-12-01, 00:00 authored by Tarun ChordiaTarun Chordia, T C Green, B Kottimukkalur
Prices of the highly liquid S&P 500 exchange-traded fund (SPY) and the E-mini future (ES) respond to macroeconomic announcement surprises within five milliseconds, with trading intensity increasing over 100-fold following the news release. However, profits from trading quickly are relatively small, roughly $19,000 ($50,000) per event for SPY (ES). Although the speed of information incorporation has increased in recent years, profits have not. Order flow has become less informative, consistent with prices responding directly to news rather than indirectly through trading. Our evidence indicates that low-latency liquidity demanders do not benefit materially from short-term monopolistic access to information.

History

Journal

Review of financial studies

Volume

31

Issue

12

Pagination

4650 - 4687

Publisher

Oxford University Press

Location

Oxford, Eng.

ISSN

0893-9454

eISSN

1465-7368

Language

eng

Publication classification

C Journal article; C1.1 Refereed article in a scholarly journal

Copyright notice

2018, The Author(s)

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