Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2012-11-13 Number: 12-121/III Author-Name: Martin L. Scholtus Author-Workplace-Name: Erasmus University Rotterdam Author-Name: Dick van Dijk Author-Workplace-Name: Erasmus University Rotterdam Author-Name: Bart Frijns Author-Workplace-Name: Auckland University of Technology Title: Speed, Algorithmic Trading, and Market Quality around Macroeconomic News Announcements 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). Classification-JEL: E44, G10, G14 Keywords: Macroeconomic News, High Frequency Trading, Latency Costs, Market Activity, Event-Based Trading File-Url: https://papers.tinbergen.nl/12121.pdf File-Format: application/pdf File-Size: 1752859 bytes Handle: RePEc:tin:wpaper:20120121