We study the consequences of information arrival for market outcomes when both high-frequency and slower traders provide liquidity. We present a model that predicts faster traders achieve a relative increase in profits obtained from liquidity provision following a news event through (i) avoiding adverse selection by canceling mispriced quotes, and (ii) winning the race to post updated quotes. We find strong support for these model predictions using data from the Toronto Stock Exchange. The identification strategy is based on an unanticipated news event in which the Twitter feed of the Associated Press falsely reported a terrorist attack.
Several financial exchanges have recently introduced messaging delays (e.g., a 350 microsecond delay at IEX and NYSE American) intended to protect ordinary investors from high-frequency traders who exploit stale orders. We propose an equilibrium model of this exchange design as a modification of the standard continuous double auction market format. The model predicts that a messaging delay will generally improve price efficiency and lower transactions cost but will increase queuing costs. Some of the predictions are testable in the field or in a laboratory environment.
Berzelius failed to make use of Faraday's electrochemical laws in his laborious determination of equivalent weights.