Review of Financial Studies Vol. 31 No. 12 2018
Rent Seeking by Low-Latency Traders: Evidence from Trading on Macroeconomic Announcements
Abstract
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. Received April 18, 2017; editorial decision November 4, 2017 by Editor Andrew Karolyi.
- DOI
- 10.1093/rfs/hhy025
- Volume
- 31
- Issue
- 12
- Pages
- 4650-4687
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref