“Fast money” around Federal Statistics Releases

Abstract

AbstractMany public statistics are closely followed by the public as they provide valuable information for decision making. Although economic theory suggests that low‐latency traders (LLTs) can earn excess arbitrage profits from trading on public statistics releases due to their speed advantage, the empirical literature fails to find meaningful LLTs' stock market profits when trading on macroeconomic statistical releases. Here we confirm previous findings with improved techniques, but also show that excess profits can be earned quickly in agricultural commodity futures markets around United States Department of Agriculture (USDA) statistical releases. We attribute differences in the magnitude of the profits to the straightforward nature of the information and to the direct relevance of the reports to traders for the markets considered. Motivated by market concerns, USDA and the United States Department of Labor recently changed their news media prerelease lockup policy to mitigate LLTs' speed advantage. However, we find the policy change had little effect on the speed advantage as no significant reduction in LLTs' profits occurred. Implications of the research are relevant for government agencies concerned with mitigating LLT speed advantages particularly during the release of public statistical information.