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
TypeArticle accepté pour publication ou publié
Journal nameThe Review of Financial Studies
Oxford University Press
MetadataShow full item record
Abstract (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 / Keywordsexchange latency, high frequency trading, microstructure
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