Articles

News Trading and Speed

T. FOUCAULT, J. HOMBERT, I. ROSU

The Journal of Finance

février 2016, vol. 71, n°1, pp.335-382

Départements : Finance, GREGHEC (CNRS)

Mots clés : News, Liquidity, Volume, Price discovery, High frequency trading

http://dx.doi.org/10.2139/ssrn.2188822


We compare the optimal trading strategy of an informed speculator when he can trade ahead of incoming news (is “fast”), versus when he cannot (is “slow”). We find that speed matters: the fast speculator's trades account for a larger fraction of trading volume, and are more correlated with short-run price changes. Nevertheless, he realizes a large fraction of his profits from trading on long-term price changes. The fast speculator's behavior matches evidence about high frequency traders. We predict that stocks with more informative news are more liquid even though they attract more activity from informed high frequency traders


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