Speed, Algorithmic Trading, and Market Quality around Macroeconomic News Announcements

Martin L. Scholtus, Dick van Dijk and Bart Frijns
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Martin L. Scholtus: Erasmus University Rotterdam

No 12-121/III, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper resulted in a publication in the 'Journal of Banking and Finance', 2014, 38, 89-105.

This paper documents that speed is crucially important for high frequency trading strategies based on U.S. macroeconomic news releases. Using order level data of the highly liquid S&P500 ETF traded on NASDAQ from January 6, 2009, to December 12, 2011, we find that a delay of 300 milliseconds (1 second) significantly reduces returns by 3.08% (7.33%) compared to instantaneous execution over all announcements in the sample. This reduction is stronger in case of high impact news and on days with high volatility. In addition, we assess the effect of algorithmic trading on market quality around macroeconomic news. Increases in algorithmic trading activity have a positive (mixed) effect on market quality measures when we use algorithmic trading proxies that capture the top of the orderbook (full orderbook).

Keywords: Macroeconomic News; High Frequency Trading; Latency Costs; Market Activity; Event-Based Trading (search for similar items in EconPapers)
JEL-codes: E44 G10 G14 (search for similar items in EconPapers)
Date: 2012-11-13
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Speed, algorithmic trading, and market quality around macroeconomic news announcements (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20120121

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