Rent Seeking by Low Latency Traders: Evidence from Trading on Macroeconomic Announcements

Chordia, Tarun; Green, T. Clifton; Kottimukkalur, Badrinath

doi:10.2139/ssrn.3062161

Cited by 9 publications

(4 citation statements)

References 38 publications

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“…We sample macroeconomic releases that have a major impact on the financial market. Following Chordia, Green, and Kottimukkalur () and Balduzzi, Elton, and Green (), we compare the pre‐announcement returns, measured as the percentage mid‐quote change from 5 minutes before an announcement to the release time, with the post‐announcement returns, measured as the percentage mid‐quote change from the release time to 5 minutes after an announcement. A major announcement is defined as one where the post‐announcement return is two‐times the magnitude of the pre‐announcement return.…”

Section: Methodsmentioning

confidence: 99%

Asymmetry in the Permanent Price Impact of Block Purchases and Sales: Theory and Empirical Evidence

Frino

Mollica

Romano

et al. 2016

Journal of Futures Markets

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Previous research has identified that the information effects of buyer‐initiated trades are greater than seller‐initiated trades. We develop a theoretical model that predicts block purchases are relatively more informed in bear markets and block sales are relatively more informed in bull markets. Using a sample of large trades executed in the E‐mini S&P 500 index futures and SPDR S&P 500 exchange traded fund, we find evidence consistent with our theoretical model. Our results are robust to volatility and macro‐economic news announcements categorized as bullish or bearish. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:359–373, 2017

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Section: Methodsmentioning

confidence: 99%

Asymmetry in the Permanent Price Impact of Block Purchases and Sales: Theory and Empirical Evidence

Frino

Mollica

Romano

et al. 2016

Journal of Futures Markets

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“…() find that HFTs improve price efficiency through lower return autocorrelations and fewer arbitrage opportunities. Chordia, Green, and Kottimukkalur () show that high‐frequency market orders impound information quickly following macroeconomic announcements.…”

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confidence: 99%

Price Discovery without Trading: Evidence from Limit Orders

Brogaard¹,

Hendershott²,

Riordan

2019

The Journal of Finance

179

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We analyze the contribution to price discovery of market and limit orders by high‐frequency traders (HFTs) and non‐HFTs. While market orders have a larger individual price impact, limit orders are far more numerous. This results in price discovery occurring predominantly through limit orders. HFTs submit the bulk of limit orders and these limit orders provide most of the price discovery. Submissions of limit orders and their contribution to price discovery fall with volatility due to changes in HFTs’ behavior. Consistent with adverse selection arising from faster reactions to public information, HFTs’ informational advantage is partially explained by public information.

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“…However, this study investigates trading only in blue chips securities and does not take into account mid‐ and small‐cap stocks. Chordia, Green and Kottimukkalur () use millisecond data of S&P 500 Exchange Traded Fund and S&P 500 E‐Mini Futures to examine the market reaction to 15 types of macroeconomic news announcements. They observe that alternative sources of profit, such as predicting order flow, could fall in response to competition from fast market participants.…”

Section: Related Empirical Literaturementioning

confidence: 99%

Front‐Running Scalping Strategies and Market Manipulation: Why Does High‐Frequency Trading Need Stricter Regulation?

Manahov

2016

The Financial Review

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Regulators continue to debate whether high‐frequency trading (HFT) is beneficial to market quality. Using Strongly Typed Genetic Programming (STGP) trading algorithm, we develop several artificial stock markets populated with HFT scalpers and strategic informed traders. We simulate real‐life trading in the millisecond time frame by applying STGP to real‐time and historical data from Apple, Exxon Mobil, and Google. We observe that HFT scalpers front‐run the order flow, resulting in damage to market quality and long‐term investors. To mitigate these negative implications, we propose batch auctions every 30 milliseconds of trading.

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Rent Seeking by Low Latency Traders: Evidence from Trading on Macroeconomic Announcements

Cited by 9 publications

References 38 publications

Asymmetry in the Permanent Price Impact of Block Purchases and Sales: Theory and Empirical Evidence

Asymmetry in the Permanent Price Impact of Block Purchases and Sales: Theory and Empirical Evidence

Price Discovery without Trading: Evidence from Limit Orders

Front‐Running Scalping Strategies and Market Manipulation: Why Does High‐Frequency Trading Need Stricter Regulation?

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