Latency in fragmented markets

    Research output: Contribution to journalArticlepeer-review

    Abstract (may include machine translation)

    I examine the impact of cross-venue latency on market quality using a model of informed trader competition in a fragmented market. As cross-venue latency decreases, liquidity and price discovery improve while the expected profits of informed traders decline. Moreover, a fall in the latency of one venue can harm liquidity at the other venue. An extension predicts that, as the informed traders consolidate or outsource trading, benefits of shorter cross-venue latency are attenuated and its harmful effects intensify. My model generates testable predictions about the effects of changes in cross-venue latency on market quality.

    Original languageEnglish
    Pages (from-to)128-153
    Number of pages26
    JournalReview of Economic Dynamics
    Volume33
    DOIs
    StatePublished - Jul 2019

    Keywords

    • Latency
    • Liquidity
    • Market fragmentation
    • Price discovery

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