How long before news is fully priced in?

How long does it take for news to be fully priced in?

  • <1 second. EMH operates at the speed of HFT

    Votes: 6 27.3%

  • A few minutes. There are some inefficiencies in the markets

    Votes: 5 22.7%

  • Hours, as firms run algos (like VWAP) to minimize transaction costs

    Votes: 1 4.5%

  • A day or more. It takes time to unwind positions

    Votes: 2 9.1%

  • EOD as dark pool data are released

    Votes: 1 4.5%

  • More than a day

    Votes: 3 13.6%

  • More than a week

    Votes: 4 18.2%
  • Total voters
    22
When an event E occurs, it becomes known (typically by a reporter), validated, reported to an editor, released to insiders, released to news agencies, and finally released to the public.
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Along that news release chain there are always leaks and hacks before news gets to the released to the public stage. There are entire strategies built around trading the price drift leading up to an earnings release.

Every years there are multiple stories like this one https://www.wsj.com/articles/overse...cking-secs-corporate-filing-trove-11547562262
 
kmiklas said:
I've been doing a lot of research on information; specifically the flow of events to the public, and how it affects prices.

When an event E occurs, it becomes known (typically by a reporter), validated, reported to an editor, released to insiders, released to news agencies, and finally released to the public.

At any step along the way, one who becomes aware of E before release has the ability to profit therefrom if they understand its effect on the market. Also, the nanosecond the article is released the HFT news readers parse and profit.

This is really the essence of profit: leveraging information, right? Technical, fundamental, trade, inside... There's a lot to this.
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Technically when you have a profitable day you were successful in leveraging something. Sometimes you know what that is and other times you don't know. When you stick with a strategy the strategy is the leverage.. Not to be discouraging your efforts but I can tell you that you are under estimating the effort with HFT. Trading with a bot doesn't mean you should own a HFT setup. You are competing with larger players who have more resources than retail. Beyond a research stage it is unlikely to yield real life usecase. Even if you build a poc you still need a larger player as the first customer. Selling your poc to someone else may be financially better yielding than going on your own. Commonly available HFT sw only provide generic algorithms. The trading strategy requires proprietary development and often consulting to implement it using the framework. Noone sells a money making machine.
 
Girija said:
Technically when you have a profitable day you were successful in leveraging something. Sometimes you know what that is and other times you don't know. When you stick with a strategy the strategy is the leverage.. Not to be discouraging your efforts but I can tell you that you are under estimating the effort with HFT. Trading with a bot doesn't mean you should own a HFT setup. You are competing with larger players who have more resources than retail. Beyond a research stage it is unlikely to yield real life usecase. Even if you build a poc you still need a larger player as the first customer. Selling your poc to someone else may be financially better yielding than going on your own. Commonly available HFT sw only provide generic algorithms. The trading strategy requires proprietary development and often consulting to implement it using the framework. Noone sells a money making machine.
More...
Fully agree... having worked on HFT systems I know full well that I have no chance as a retail trader. It's like racing a Ferrari with a tricycle.

BUT, If I can become aware of an event _before_ the HFT algos get it... if I can discern the event earlier in the flow... profit.
 
DaveV said:
As other responders have noticed it depends on the type of news. However, I make most of my income by processing news (I don't use charts) so I would like to expand on that. News goes through 3 phases: Initial, Short term and Long term. In almost all news (earnings, economic, mergers, takeovers, FDA announcements) the initial reaction is instantaneous because automated systems are preprogrammed to process specific parts of the news release text. Next comes the short term reaction based on subsequent earnings conference calls, discussions on the business channel about the news, Twitter reactions, etc. Finally comes the long term reactions when investors see that the initial and short term reactions trends are holding; for example, if a heavily shorted stock comes out with great earnings the shorts will start covering.
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Interesting. And insightful.

Curious - how do you typically monetize this? I mean - do you have algorithms similar to the automated systems you mentioned or do you do it manually by pre-planning different scenarios?

There were a few news traders in Schager's latest books. Kind of interesting. I believe one of them used an algorithm. The other traded manually.
 
Laissez Faire said:
Interesting. And insightful.

Curious - how do you typically monetize this? I mean - do you have algorithms similar to the automated systems you mentioned or do you do it manually by pre-planning different scenarios?

There were a few news traders in Schager's latest books. Kind of interesting. I believe one of them used an algorithm. The other traded manually.
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I have a semi-automated system. i.e. My system processes both news and quotes in realtime, and when my algorithm detects a possible buy or short, it pops up a screen with the relevant news and other info displayed. The amount and price fields are already filled in so all I have to do is press the Enter key. Basically I try to make the trade decision in under 2 seconds. Not fully automated, but close. Too much can go wrong with fully automated systems.

BTW, what is the name of Schwager's book that mentions news trading? Thanks
 
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I don't think retail trader can beat HFT trading the initial reaction directional.
But there may be profit trading the post-earnings announcement drift (PEA). Accounting papers call it also SUE (standardized unexpected earnings). It is a well studied phenomenon in the accounting world.
If there is an underreaction to the news, price will tend to drift for months in the direction of an earnings surprise well into subsequent earnings which supports market inefficiency theory.
Underreaction is one of several possible reasons for PEA.

https://www.sciencedirect.com/science/article/abs/pii/016541019090008R
https://www.jstor.org/stable/2491062
https://www.degruyter.com/document/doi/10.7208/9780226426983-009/html
 
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