Publication: The market quality implications of speed in cross-platform trading: evidence from Frankfurt-London microwave
Program
KU-Authors
Rzayev, Khaladdin
KU Authors
Co-Authors
Ibikunle, Gbenga
Steffen, Tom
Advisor
Publication Date
Language
en
Type
Journal Title
Journal ISSN
Volume Title
Abstract
Exploiting information transmission latency between stock exchanges in Frankfurt and London, and speed-inducing technological upgrades, we show that when cross-market latency arbitrage opportunities are linked to the arrival of information, high-frequency traders' (HFTs') activities impair liquidity and enhance price discovery by facilitating the incorporation of public information into prices. Conversely, when cross-market latency arbitrage opportunities are driven by liquidity shocks, HFTs improve liquidity and reduce trading costs, thus incentivizing information acquisition and trading with private information. These findings underscore the complex nature of the association between trading speed and market quality and reconcile mixed evidence in the extant literature.
Source:
Journal of Financial Markets
Publisher:
Elsevier
Keywords:
Subject
Business, Finance