Early Peek Advantage?

From 2007 to June 2013, a small group of fee-paying, high-speed traders receive the Michigan Index of Consumer Sentiment two seconds before its broader release. Within this early peek window, we find highly concentrated trading and a fast price discovery of less than 200 milliseconds. Outside this narrow window, general investors trade at fully adjusted prices. We further establish a casual relationship between the early peek mechanism and the fast price discovery by isolating the impact of the early peek arrangement along two dimensions. In cross section, we use other news releases without the early peek (as controls); in time series, we use the sudden suspension of the early peek arrangement in July 2013 (as the treatment). Our difference-in-difference tests directly connect the early peek arrangement to more efficient price discovery — it results in faster price discovery, lower volatility, and faster resolution of uncertainty. These results show that contrary to the common perception, tiered information release may help to reduce, rather than enhance, the informational advantage of the faster traders. ∗Hu ([email protected]) is from University of Hong Kong, Pan ([email protected]) and Wang ([email protected], corresponding author) are from MIT Sloan School of Management, CAFR, and NBER. We are grateful to G. William Schwert (the editor), the anonymous reviewer, and Jonathan Brogaard for valuable discussions. We also thank seminar participants at the 2015 American Finance Association Meetings, the Program in Law and Economics of Capital Markets at Columbia, the Cheung Kong Graduate School of Business and National University of Singapore. We thank Cathy Fang for excellent research assistance.