Early peek advantage? Efficient price discovery with tiered information disclosure

Grace Xing Hu, Jun Pan and Jiang Wang

Journal of Financial Economics, 2017, vol. 126, issue 2, 399-421

Abstract: From 2007 to June 2013, a small group of fee-paying, high-speed traders receive the Michigan Index of Consumer Sentiment two seconds before its broader release. Within this early peek window, we find highly concentrated trading and a fast price discovery of less than 200 milliseconds. Outside this narrow window, general investors trade at fully adjusted prices. We further establish a causal relationship between the early peek mechanism and the fast price discovery by isolating the impact of the early peek arrangement along two dimensions. In cross section, we use other news releases without the early peek (as controls); in time series, we use the sudden suspension of the early peek arrangement in July 2013 (as the treatment). Our difference-in-difference tests directly connect the early peek arrangement to more efficient price discovery — it results in faster price discovery, lower volatility, and faster resolution of uncertainty. These results show that contrary to the common perception, tiered information release may help to reduce, rather than enhance, the informational advantage of faster traders and improve the efficiency of the price discovery process in financial markets.

Keywords: Early peek; Information disclosure; Price discovery; High frequency trading (search for similar items in EconPapers)
JEL-codes: D82 G14 G18 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:126:y:2017:i:2:p:399-421

DOI: 10.1016/j.jfineco.2017.07.007

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