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Biais, Bruno
, Foucault, Thierry and Moinas, Sophie
(2015)
Equilibrium Fast Trading.
Journal of Financial Economics, 116 (2).
pp. 292-313.
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Abstract
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 Classification: | D4 - Market Structure and Pricing D62 - Externalities G1 - General Financial Markets G20 - General L1 - Market Structure, Firm Strategy, and Market Performance |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSM Research (Toulouse), TSE-R (Toulouse) |
| Site: | UT1 |
| Date Deposited: | 16 Mar 2015 14:51 |
| Last Modified: | 02 Apr 2021 15:49 |
| OAI Identifier: | oai:tse-fr.eu:28569 |
| URI: | https://publications.ut-capitole.fr/id/eprint/16601 |
Available Versions of this Item
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Equilibrium Fast Trading. (deposited 09 Jul 2014 17:34)
- Equilibrium Fast Trading. (deposited 16 Mar 2015 14:51) [Currently Displayed]
