Equilibrium fast trading

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 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 technology
Type de document :
Article dans une revue
Journal of Financial Economics, Elsevier, 2015, 116 (2), pp.292 - 313. 〈10.1016/j.jfineco.2015.03.004〉
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Soumis le : lundi 21 novembre 2016 - 16:32:37
Dernière modification le : jeudi 11 janvier 2018 - 06:27:04

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Bruno Biais, Thierry Foucault, Sophie Moinas. Equilibrium fast trading. Journal of Financial Economics, Elsevier, 2015, 116 (2), pp.292 - 313. 〈10.1016/j.jfineco.2015.03.004〉. 〈halshs-01400252〉



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