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

Abstract

This paper studies market microstructure implications of informed high‐frequency traders (HFTs) from two seconds of advance peek into the Michigan Index of Consumer Sentiment (ICS), provided by Thomson Reuters to its elite customers. Using individual stocks in the NASDAQ data set, we show how HFTs trade around ICS events. We find that liquidity demanders during two seconds of advance peek earn substantive profits, which are consistent with the notion that HFTs’ informational advantages may increase adverse selection costs for other market participants. This evidence elucidates the debate on regulatory oversight and its role in circumventing the potentially adverse effects from an advance peek into ICS.

The sensitivity of trading to the cost of information

“…Wu, Liu, Suardi, and Chang (2015) and Angel and McCabe (2018) analyze the issue of the advance peek sale of Consumer Sentiment Data by the University of Michigan. Wu et al (2015) find that liquidity demanding high frequency traders (HFT) with privileged access to data devised a trading strategy to avoid revealing their information to the market and were able to generate significantly higher profits than traders without early access. They note that while there is nothing “procedurally unfair” about the advance sale of data, it does grant the HFT an advantage over ordinary traders that can be regarded as unfair and may lead to questioning of the integrity of financial markets.…”

Implementation of Text Mining in Socio-Economic Research

“…The effect of consumer and investor sentiments on the restaurant industry," Yost et al (2020) examine the impact of cyclical fluctuations in the consumer confidence index and the volatility index as early warning indicators of changes in the financial performance of restaurant business entities. Wu et al (2019) focus on the relationship of consumer spending with changes in the confidence index. The results show that planning consumption growth by considering the mood of consumers and businesses leads to many economic benefits.…”