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Information Transmission between Financial Markets in Chicago and New York

Author

Listed:
  • Michael Goldstein
  • Gregory Laughlin
  • Anthony Aguirre
  • Joseph Grundfest

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.

Suggested Citation

  • Michael Goldstein & Gregory Laughlin & Anthony Aguirre & Joseph Grundfest, 2014. "Information Transmission between Financial Markets in Chicago and New York," The Financial Review, Eastern Finance Association, vol. 49(2), pages 283-312, May.
  • Handle: RePEc:bla:finrev:v:49:y:2014:i:2:p:283-312
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    File URL: http://hdl.handle.net/10.1111/fire.12036
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    Citations

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    Cited by:

    1. Vasilios Mavroudis, 2019. "Market Manipulation as a Security Problem," Papers 1903.12458, arXiv.org.
    2. Zura Kakushadze, 2016. "Volatility Smile as Relativistic Effect," Papers 1610.02456, arXiv.org, revised Feb 2017.
    3. Aldrich, Eric M. & Heckenbach, Indra & Laughlin, Gregory, 2016. "A compound duration model for high-frequency asset returns," Journal of Empirical Finance, Elsevier, vol. 39(PA), pages 105-128.
    4. repec:eee:empfin:v:48:y:2018:i:c:p:81-98 is not listed on IDEAS
    5. Serbera, Jean-Philippe & Paumard, Pascal, 2016. "The fall of high-frequency trading: A survey of competition and profits," Research in International Business and Finance, Elsevier, vol. 36(C), pages 271-287.
    6. repec:eee:pacfin:v:53:y:2019:i:c:p:186-207 is not listed on IDEAS
    7. Delaney, L., 2015. "An Examination of the Optimal Timing Strategy for a Slow Trader Investing in a High Frequency Trading Technology," Working Papers 15/04, Department of Economics, City University London.
    8. Marlene Haas & Marius Andrei Zoican, 2016. "Beyond the Frequency Wall: Speed and Liquidity on Batch Auction Markets," Post-Print hal-01484805, HAL.
    9. repec:eee:finmar:v:37:y:2018:i:c:p:1-16 is not listed on IDEAS
    10. Cesar Martinelli & Jianxin Wang & Weiwei Zheng, 2019. "Competition with Indivisibilities and Few Traders," Working Papers 1073, George Mason University, Interdisciplinary Center for Economic Science.
    11. repec:bla:irvfin:v:18:y:2018:i:4:p:727-741 is not listed on IDEAS
    12. Henryk Gurgul & Robert Syrek, 2016. "The logarithmic ACD model: The microstructure of the German and Polish stock markets," Managerial Economics, AGH University of Science and Technology, Faculty of Management, vol. 17(1), pages 77-92.
    13. Thorsten Hens & Terje Lensberg & Klaus Reiner Schenk‐Hoppé, 2018. "Front‐Running and Market Quality: An Evolutionary Perspective on High Frequency Trading," International Review of Finance, International Review of Finance Ltd., vol. 18(4), pages 727-741, December.
    14. Kakushadze, Zura, 2017. "Volatility smile as relativistic effect," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 475(C), pages 59-76.
    15. Xu, Feng & Wan, Difang, 2015. "The impacts of institutional and individual investors on the price discovery in stock index futures market: Evidence from China," Finance Research Letters, Elsevier, vol. 15(C), pages 221-231.

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