News trading and speed

• Autores: Thierry Foucault, Johan Hombert, Ioanid Rosu
• Localización: The Journal of finance, ISSN 0022-1082, Vol. 71, Nº 1, 2016, págs. 335-382
• Idioma: inglés
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• Resumen

  • 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.