Early peek advantage? Efficient price discovery with tiered information disclosure

Tiered Information Disclosure: An Empirical Analysis of the Advance Peek into the Michigan Index of Consumer Sentiment

“…While our profit is derived from trades in individual company stocks, it provides a useful indicator for the sheer size of potential profit made by an HFT D who trades in composite index like the ETFs and E‐mini S&P 500 futures. In this regard, our results complement the findings of Hu, Pan and Wang () who investigated the impact of early peek advantage on price discovery of the E‐mini S&P 500 futures but did not consider the implications on equity and profits between HFTs and non‐HFTs. Third, the profit is computed on the basis of a small sample of stocks (i.e., 118 stocks) considered in the NASDAQ data, which are constructed using stratified sampling from both the NASDAQ and NYSE.…”

“…Our results indicate that the two‐second advance peek on ICS may have occurred before January 2008. These results are consistent with the findings of Hu, Pan and Wang (), who show that Reuters started to distribute ICS in multiple tiers sometime in 2007. It is noteworthy that the sample period available for the NASDAQ data coincides with the practice of ICS early release.…”

“…Note that the period 2007 is excluded from our subperiod 1 sample because: (1) we are uncertain about the precise starting date of ICS early release in 2007, and (2) we must ensure that subperiod 1 signifies the period before the practice of ICS early release. The exclusion of 2007 data is also reflected in the study of Hu, Pan and Wang () for similar reasons.…”

“…The data set also identifies whether HFTs are supplying liquidity or demanding liquidity . These two features give us a unique opportunity to provide direct evidence concerning the role of HFTs during two seconds of advance peek into the Michigan ICS, compared to the contemporaneous work by Hu, Pan and Wang () . In addition, we study individual stocks as opposed to a single composite index, and by combining with the NASDAQ data set it allows us to study how HFTs trade around these events.…”

“…Hu, Pan and Wang () address the early peek advantage of the ICS and focus on the trading and price behavior in E‐mini Standard & Poor's 500 (S&P 500) futures without differentiating HFTs from non‐HFTs, and liquidity demanders from liquidity suppliers.…”