
Need for Speed? Exchange Latency and Liquidity
Menkveld, Albert; Zoican, Marius Andrei (2017), Need for Speed? Exchange Latency and Liquidity, The Review of Financial Studies, 30, 4, p. 1188-1228. 10.1093/rfs/hhx006
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Article accepté pour publication ou publiéDate
2017Journal name
The Review of Financial StudiesVolume
30Number
4Publisher
Oxford University Press
Pages
1188-1228
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Show full item recordAbstract (EN)
A faster exchange does not necessarily improve liquidity. On the one hand, speed enables a high-frequency market maker (HFM) to update quotes faster on incoming news. This reduces payoff risk and thus lowers the competitive bid-ask spread. On the other hand, HFM price quotes are more likely to meet speculative high-frequency bandits, and thus are less likely to meet liquidity traders. This raises the spread. The net effect of exchange speed depends on a security’s news-to-liquidity-trader ratio.Subjects / Keywords
exchange latency, high frequency trading, microstructureRelated items
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