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News Trading and Speed

Author

Listed:
  • Thierry Foucault

    () (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Johan Hombert

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Ioanid Rosu

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

Abstract

Speed matters: we show that an investor's optimal trading strategy is significantly different when he observes news faster than others versus when he does not, holding the precision of his signals constant. When the investor has fast access to news, his trades are much more sensitive to news, account for a much bigger fraction of trading volume, and forecast short run price changes. Moreover, in this case, an increase in news informativeness increases liquidity, volume, and the fast investor's share of trading volume. Last, price changes are more correlated with news and trades contribute more to volatility when the investor has fast access to news.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Thierry Foucault & Johan Hombert & Ioanid Rosu, 2012. "News Trading and Speed," Post-Print hal-00713377, HAL.
  • Handle: RePEc:hal:journl:hal-00713377
    Note: View the original document on HAL open archive server: https://hal-hec.archives-ouvertes.fr/hal-00713377
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    Citations

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    Cited by:

    1. Alexander M. Chinco & Adam D. Clark-Joseph & Mao Ye, 2017. "Sparse Signals in the Cross-Section of Returns," NBER Working Papers 23933, National Bureau of Economic Research, Inc.
    2. Brogaard, Jonathan & Hendershott, Terrence & Riordan, Ryan, 2017. "High frequency trading and the 2008 short-sale ban," Journal of Financial Economics, Elsevier, vol. 124(1), pages 22-42.
    3. repec:eee:quaeco:v:67:y:2018:i:c:p:219-226 is not listed on IDEAS
    4. Hoffmann, Peter, 2013. "A dynamic limit order market with fast and slow traders," Working Paper Series 1526, European Central Bank.
    5. Adrian, Tobias & Capponi, Agostino & Vogt, Erik & Zhang, Hongzhong, 2016. "Intraday market making with overnight inventory costs," Staff Reports 799, Federal Reserve Bank of New York.
    6. Benos, Evangelos & Sagade, Satchit, 2016. "Price discovery and the cross-section of high-frequency trading," Journal of Financial Markets, Elsevier, vol. 30(C), pages 54-77.
    7. Manahov, Viktor, 2016. "A note on the relationship between high-frequency trading and latency arbitrage," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 281-296.
    8. repec:eee:finmar:v:37:y:2018:i:c:p:1-16 is not listed on IDEAS
    9. Mila Getmansky & Ravi Jagannathan & Loriana Pelizzon & Ernst Schaumburg & Darya Yuferova, 2017. "Stock Price Crashes: Role of Capital Constrained Traders," NBER Working Papers 24098, National Bureau of Economic Research, Inc.
    10. repec:ecb:ecbmbu:2016:0002:1 is not listed on IDEAS
    11. Scholtus, Martin & van Dijk, Dick & Frijns, Bart, 2014. "Speed, algorithmic trading, and market quality around macroeconomic news announcements," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 89-105.
    12. Gerig, Austin & Michayluk, David, 2017. "Automated liquidity provision," Pacific-Basin Finance Journal, Elsevier, vol. 45(C), pages 1-13.
    13. Linton, O. & Mahmoodzadeh, S., 2018. "Implications of High-Frequency Trading for Security Markets," Cambridge Working Papers in Economics 1802, Faculty of Economics, University of Cambridge.
    14. Jonathan Brogaard & Corey Garriott & Anna Pomeranets, 2014. "High-Frequency Trading Competition," Staff Working Papers 14-19, Bank of Canada.
    15. Thierry Foucault & Roman Kozhan & Wing Wah Tham, 2017. "Toxic Arbitrage," Review of Financial Studies, Society for Financial Studies, vol. 30(4), pages 1053-1094.
    16. repec:ecb:ecbmbu:2016:0002:2 is not listed on IDEAS
    17. Alexis Stenfors & Masayuki Susai, 2017. "Liquidity Withdrawal in the FX Spot Market: A Cross-Country Study Using High-Frequency Data," Working Papers in Economics & Finance 2017-06, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    18. Francis Breedon & Louisa Chen & Angelo Ranaldo & Nicholas Vause, 2018. "Judgement Day: Algorithmic Trading Around the Swiss Franc Cap Removal," Working Papers on Finance 1808, University of St. Gallen, School of Finance.
    19. repec:ecb:ecbmbu:2016:0002:3 is not listed on IDEAS
    20. Albert J. Menkveld & Marius A. Zoican, 2017. "Need for Speed? Exchange Latency and Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 30(4), pages 1188-1228.
    21. Acheson, Graeme G. & Coyle, Christopher & Turner, John D., 2018. "Prices and informed trading: Evidence from an early stock market," QUCEH Working Paper Series 2018-05, Queen's University Belfast, Queen's University Centre for Economic History.
    22. Hoffmann, Peter, 2014. "A dynamic limit order market with fast and slow traders," Journal of Financial Economics, Elsevier, vol. 113(1), pages 156-169.
    23. Hautsch, Nikolaus & Noé, Michael & Zhang, S. Sarah, 2017. "The ambivalent role of high-frequency trading in turbulent market periods," CFS Working Paper Series 580, Center for Financial Studies (CFS).
    24. Bellia, Mario & Pelizzon, Loriana & Subrahmanyam, Marti & Uno, Jun & Yuferova, Darya, 2017. "Coming early to the party," SAFE Working Paper Series 182, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    25. repec:ebl:ecbull:eb-17-00734 is not listed on IDEAS

    More about this item

    Keywords

    News; Trading; Speed;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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