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

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  • Chordia, Tarun
  • Miao, Bin

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.

Suggested Citation

  • Chordia, Tarun & Miao, Bin, 2020. "Market efficiency in real time: Evidence from low latency activity around earnings announcements," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    • Handle: RePEc:eee:jaecon:v:70:y:2020:i:2:s0165410120300379
    DOI: 10.1016/j.jacceco.2020.101335
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    3. Corgnet, Brice & DeSantis, Mark & Siemroth, Christoph, 2023. "Algorithmic Trading, Price Efficiency and Welfare: An Experimental Approach," Economics Discussion Papers 36273, University of Essex, Department of Economics.
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    6. Dodd, Olga & Frijns, Bart & Indriawan, Ivan & Pascual, Roberto, 2023. "US cross-listing and domestic high-frequency trading: Evidence from Canadian stocks," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 301-320.
    7. Laurent Bouton & Aniol Llorente-Saguer & Antonin Macé & Adam Meirowitz & Shaoting Pi & Dimitrios Xefteris, 2024. "Public Information as a Source of Disagreement," Working Papers halshs-04075483, HAL.
    8. Millicent Chang & John Gould & Yuyun Huang & Sirimon Treepongkaruna & Joey Wenling Yang, 2022. "Insider trading and the algorithmic trading environment," International Review of Finance, International Review of Finance Ltd., vol. 22(4), pages 725-750, December.
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    More about this item

    Keywords

    Low-latency trading; Market efficiency; Earnings announcement; Post-earnings announcement drift;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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