A network map of information percolation

When the trading of a security is fragmented across exchanges, MTFs, and dark pools, the prices at different markets co-move almost instantaneously. Almost. What happens in the time span specified as almost instantaneous? Once new information appears at one market, how does it spread to the other markets trading the same security?

Information percolation describes how information spreads between markets. In a paper with Albert Menkveld, we propose a new methodology to measure information percolation in ultra high-frequency data, uncovering the paths information flows take between markets. We apply it to the euro-Swiss franc currency pair, showing how information flows between dealers at the OTC market and the interdealer trading platform EBS.

The paper is at SSRN, and a longer blog post is at Albert’s website.

FX_2015_100ms_inf_period3_community_new_2

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s