Strategic Speed Choice by High-Frequency Traders under Speed Bumps

Material type: 文書・図像類

Author: Aoyagi, Jun

Publisher: The Institute of Social and Economic Research, Osaka University

Publication date: 2019-02

Material Format: Paper

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Note (General)：: We study how high-frequency traders (HFTs) strategically decide their speed level in a market with a random speed bump. If HFTs recognize the market i...

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Paper

Material Type: 文書・図像類
Title: Strategic Speed Choice by High-Frequency Traders under Speed Bumps
Author/Editor: Aoyagi, Jun
Author Heading: Aoyagi, Jun
Publication, Distribution, etc.: The Institute of Social and Economic Research, Osaka University
Publication Date: 2019-02
Publication Date (W3CDTF): 2019-02
Periodical title: Institute of Social and Economic Research Discussion Papers
No. or year of volume/issue: 1050
Volume: 1050
Pages: 1-42
Text Language Code: eng
Subject Heading: High-frequency trading
market structure
speed bumps
adverse selection
strategic speed decision
Target Audience: 一般
Note (General): We study how high-frequency traders (HFTs) strategically decide their speed level in a market with a random speed bump. If HFTs recognize the market impact of their speed decision, they perceive a wider bid-ask spread as an endogenous upward-sloping cost of being faster. We find that the speed elasticity of the bid-ask spread (slope of the endogenous cost function) negatively depends on the expected length of a speed bump since a longer delay makes market makers insensitive to HFTs’ speed increment. Hence, speed bumps promote the investment of HFTs in high-speed technology by reducing the marginal cost of getting faster, undermining their intended purpose of protecting market makers. Depending on the expected length of a bump, an arms race among HFTs exhibits both complementarity and substitution. These findings explain the ambiguous empirical results regarding speed bumps and adverse selection for market makers. Keywords: High-frequency trading, market structure, speed bumps, adverse selection, strategic speed decision.
References (URI): https://www.iser.osaka-u.ac.jp/library/dp/2019/DP1050.pdf
URI
https://www.iser.osaka-u.ac.jp/library/dp/2019/DP1050.pdf
Data Provider (Database): 国立情報学研究所 : 学術機関リポジトリデータベース（IRDB）（機関リポジトリ）
https://irdb.nii.ac.jp
Original Data Provider (Database): 大阪大学 : 大阪大学学術情報庫　桜華