Market efficiency in real time: Evidence from low latency activity around earnings announcements

Tarun Chordia and Bin Miao

Journal of Accounting and Economics, 2020, vol. 70, issue 2

Abstract: The literature has used small samples to show that fast trading or low latency trading (LLT) improves efficiency at extremely high frequencies. However, it is not clear whether LLT driven high frequency improvements in efficiency can impact corporate decision making and investor risk sharing or hedging, which are low frequency processes. This paper uses a comprehensive cross-sectional and time-series sample to provide evidence that LLT enhances efficiency around earnings announcements. Low latency traders trade aggressively at the time of the earnings announcements, such that the information in earnings surprises is quickly incorporated into prices and the post-announcement drift is reduced.

Keywords: Low-latency trading; Market efficiency; Earnings announcement; Post-earnings announcement drift (search for similar items in EconPapers)
JEL-codes: G14 M41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:70:y:2020:i:2:s0165410120300379

DOI: 10.1016/j.jacceco.2020.101335

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