Need for Speed? Exchange Latency and Liquidity - Archive ouverte HAL
Pré-Publication, Document De Travail Année : 2016

Need for Speed? Exchange Latency and Liquidity

Résumé

Speeding up the exchange has a non-trivial effect on liquidity. On the one hand, more speed enables high-frequency market makers (HFMs) to update their quotes more quickly on incoming news. This reduces adverse-selection cost and lowers the competitive bid-ask spread. On the other hand, HFM price quotes are more likely to meet speculative high-frequency “bandits,” thus less likely to meet liquidity traders. This raises the spread. The net effect depends on a security’s news-to-liquidity-trader ratio. Empirical analysis of a NASDAQ-OMX speed upgrade shows that a faster market can indeed raise the spread and thus lower liquidity.
Fichier principal
Vignette du fichier
14097.pdf (596.16 Ko) Télécharger le fichier
Origine Fichiers produits par l'(les) auteur(s)
Loading...

Dates et versions

hal-01253615 , version 1 (11-01-2016)

Identifiants

  • HAL Id : hal-01253615 , version 1

Citer

Albert Menkveld, Marius Andrei Zoican. Need for Speed? Exchange Latency and Liquidity. 2016. ⟨hal-01253615⟩
213 Consultations
966 Téléchargements

Partager

More