Price Discovery and the Accuracy of Consolidated Data Feeds in the U.S. Equity Markets

Brian F. Tivnan, David Slater, James R. Thompson, Tobin A. Bergen-Hill, Carl D. Burke, Shaun M. Brady, Matthew T. K. Koehler, Matthew T. McMahon, Brendan F. Tivnan and Jason G. Veneman
Additional contact information
Brian F. Tivnan: The MITRE Corporation, McLean, VA 22102, USA.
David Slater: The MITRE Corporation, McLean, VA 22102, USA.
James R. Thompson: The MITRE Corporation, McLean, VA 22102, USA.
Tobin A. Bergen-Hill: The MITRE Corporation, McLean, VA 22102, USA.
Carl D. Burke: The MITRE Corporation, McLean, VA 22102, USA.
Shaun M. Brady: Center for Model-Based Regulation, Davidsonville, MD 21035, USA
Matthew T. K. Koehler: The MITRE Corporation, McLean, VA 22102, USA.
Matthew T. McMahon: The MITRE Corporation, McLean, VA 22102, USA.
Brendan F. Tivnan: Vermont Complex Systems Center, University of Vermont, Burlington, VT 05405, USA.
Jason G. Veneman: The MITRE Corporation, McLean, VA 22102, USA.

JRFM, 2018, vol. 11, issue 4, 1-17

Abstract: Both the scientific community and the popular press have paid much attention to the speed of the Securities Information Processor—the data feed consolidating all trades and quotes across the US stock market. Rather than the speed of the Securities Information Processor (SIP), we focus here on its accuracy. Relying on Trade and Quote data, we provide various measures of SIP latency relative to high-speed data feeds between exchanges, known as direct feeds. We use first differences to highlight not only the divergence between the direct feeds and the SIP, but also the fundamental inaccuracy of the SIP. We find that as many as 60% or more of trades are reported out of sequence for stocks with high trade volume, therefore skewing simple measures, such as returns. While not yet definitive, this analysis supports our preliminary conclusion that the underlying infrastructure of the SIP is currently unable to keep pace with the trading activity in today’s stock market.

Keywords: market microstructure; price discovery; latency (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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