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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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    2. 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.
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    6. Chakrabarty, Bidisha & Moulton, Pamela C. & Wang, Xu (Frank), 2022. "Attention: How high-frequency trading improves price efficiency following earnings announcements," Journal of Financial Markets, Elsevier, vol. 57(C).
    7. Jacob Thomas & Frank Zhang & Wei Zhu, 2021. "Dark Trading and Post-Earnings-Announcement Drift," Management Science, INFORMS, vol. 67(12), pages 7785-7811, December.
    8. Kee H. Chung & Chairat Chuwonganant, 2023. "Tick size and price efficiency: Further evidence from the Tick Size Pilot Program," Financial Management, Financial Management Association International, vol. 52(3), pages 483-511, September.
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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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