Equilibrium fast trading
Language
en
Article de revue
This item was published in
Journal of Financial Economics. 2015, vol. 116, n° 2, p. 292 - 313
Elsevier
English Abstract
High speed market connections improve investors׳ ability to search for attractive quotes in fragmented markets, raising gains from trade. They also enable fast traders to obtain information before slow traders, generating ...Read more >
High speed market connections improve investors׳ ability to search for attractive quotes in fragmented markets, raising gains from trade. They also enable fast traders to obtain information before slow traders, generating adverse selection, and thus negative externalities. When investing in fast trading technologies, institutions do not internalize these externalities. Accordingly, they overinvest in equilibrium. Completely banning fast trading is dominated by offering two types of markets: one accepting fast traders, the other banning them. Utilitarian welfare is maximized with (i) a single market type on which fast and slow traders coexist and (ii) Pigovian taxes on investment in the fast trading technologyRead less <
English Keywords
High-frequency trading
Externalities
Welfare
Origin
Hal importedCollections