Do High Frequency Traders Need to be Regulated? Evidence from Trading on Macroeconomic Announcements
Category: Finance Seminar
When: 17 Mai 2016
Where: House of Finance, E01 Deutsche Bank
Speaker: Tarun Chordia, Emory University
Prices of stock index exchange traded funds and index futures respond to macroeconomic announcement surprises within a tenth of a second, with trading intensity increasing ten-fold in the quarter second following the news release. Profits from trading quickly on announcement surprises are relatively small and decline in recent years. Trading profits also decrease with quote intensity. The speed of information incorporation increases in recent years and order flow becomes less informative, consistent with prices responding to news directly rather than indirectly through trading. Our evidence is consistent with increasing competition among high frequency traders, which mitigates concerns about their speed advantage.