Equilibrium Fast Trading

Biais, Bruno, Foucault, Thierry and Moinas, Sophie (2015) Equilibrium Fast Trading. Journal of Financial Economics, 116 (2). pp. 292-313.

This is the latest version of this item.

Download (591kB) | Preview
Official URL: http://tse-fr.eu/pub/28569


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 observe market 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. However, utilitarian welfare is maximized by having i) a single market type on which fast and slow traders coexist and ii) Pigovian taxes on investment in the fast trading technology.

Item Type: Article
Language: English
Date: May 2015
Refereed: Yes
Uncontrolled Keywords: high-frequency trading, externalities, welfare
JEL codes: D4 - Market Structure and Pricing
D62 - Externalities
G1 - General Financial Markets
G20 - General
L1 - Market Structure, Firm Strategy, and Market Performance
Divisions: TSM Research (Toulouse), TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:51
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:28569
URI: http://publications.ut-capitole.fr/id/eprint/16601

Available Versions of this Item

Actions (login required)

View Item View Item


Downloads per month over past year