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Information Transmission Between Financial Markets in Chicago and New York

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  • 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 3-millisecond decrease in one-way communication time between the Chicago and New York areas that has occurred from April 27th, 2010 to August 17th, 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 and bandwidths. We estimate the total infrastructure and 5-year operations costs associated with these latency improvements to exceed $500 million.

Suggested Citation

  • Gregory Laughlin & Anthony Aguirre & Joseph Grundfest, 2013. "Information Transmission Between Financial Markets in Chicago and New York," Papers 1302.5966, arXiv.org.
  • Handle: RePEc:arx:papers:1302.5966
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    References listed on IDEAS

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    1. Peter Carr & Helyette Geman & Dilip Madan & Marc Yor, 2004. "From local volatility to local Levy models," Quantitative Finance, Taylor & Francis Journals, vol. 4(5), pages 581-588.
    2. Rama Cont & Ekaterina Voltchkova, 2005. "Integro-differential equations for option prices in exponential Lévy models," Finance and Stochastics, Springer, vol. 9(3), pages 299-325, July.
    3. repec:dau:papers:123456789/1448 is not listed on IDEAS
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