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J. Risk Financial Manag. 2018, 11(4), 73; https://doi.org/10.3390/jrfm11040073

Price Discovery and the Accuracy of Consolidated Data Feeds in the U.S. Equity Markets

1
The MITRE Corporation, McLean, VA 22102, USA.
2
Vermont Complex Systems Center, University of Vermont, Burlington, VT 05405, USA.
3
Center for Model-Based Regulation, Davidsonville, MD 21035, USA
*
Authors to whom correspondence should be addressed.
Received: 30 September 2018 / Revised: 25 October 2018 / Accepted: 25 October 2018 / Published: 28 October 2018
(This article belongs to the Special Issue Empirical Finance)
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Abstract

Both the scientific community and the popular press have paid much attention to the speed of the Securities Information Processor—the data feed consolidating all trades and quotes across the US stock market. Rather than the speed of the Securities Information Processor (SIP), we focus here on its accuracy. Relying on Trade and Quote data, we provide various measures of SIP latency relative to high-speed data feeds between exchanges, known as direct feeds. We use first differences to highlight not only the divergence between the direct feeds and the SIP, but also the fundamental inaccuracy of the SIP. We find that as many as 60% or more of trades are reported out of sequence for stocks with high trade volume, therefore skewing simple measures, such as returns. While not yet definitive, this analysis supports our preliminary conclusion that the underlying infrastructure of the SIP is currently unable to keep pace with the trading activity in today’s stock market. View Full-Text
Keywords: market microstructure; price discovery; latency market microstructure; price discovery; latency
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
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Tivnan, B.F.; Slater, D.; Thompson, J.R.; Bergen-Hill, T.A.; Burke, C.D.; Brady, S.M.; Koehler, M.T.K.; McMahon, M.T.; Tivnan, B.F.; Veneman, J.G. Price Discovery and the Accuracy of Consolidated Data Feeds in the U.S. Equity Markets. J. Risk Financial Manag. 2018, 11, 73.

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