Rent Seeking by Low-Latency Traders: Evidence from Trading on Macroeconomic Announcements
The Review of Financial Studies, Volume 31, Issue 12, 2018, Pages 4650–4687
64 Pages Posted: 1 Nov 2017 Last revised: 25 Nov 2018
Date Written: January 2018
Abstract
Prices of the highly liquid S&P500 exchange traded fund (SPY) and the E-mini future (ES) respond to macroeconomic announcement surprises within five milliseconds, with trading intensity increasing over a hundred-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. The increasingly faster quote updates mitigates concerns that low latency liquidity demanders possess short-term monopolistic access to information.
Keywords: HFT
JEL Classification: G14, G12
Suggested Citation: Suggested Citation