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 language | English |
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Pages (from-to) | 128-153 |
Number of pages | 26 |
Journal | Review of Economic Dynamics |
Volume | 33 |
DOIs | |
State | Published - Jul 2019 |
Keywords
- Latency
- Liquidity
- Market fragmentation
- Price discovery