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Speed, distance, and electronic trading: New evidence on why location matters

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  • Garvey, Ryan
  • Wu, Fei
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    Abstract

    We examine the execution quality of electronic stock traders who are geographically dispersed throughout the United States. Traders who are located near market central computers in the New York City area experience faster order execution. Moreover, the time to execute orders rises as a trader's actual distance (mileage) to NYC widens. In electronic market settings, data transfer limitations and transmission slowdowns result in geographically-dispersed electronic traders having different access to trading speed. We find that speed differences are costly to traders and that speed-advantaged traders engage in strategies that are more conducive to speed.

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    File URL: http://www.sciencedirect.com/science/article/B6VHN-50H1WW3-1/2/5cce9b12ec4cf5cc193344879182c62e
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Markets.

    Volume (Year): 13 (2010)
    Issue (Month): 4 (November)
    Pages: 367-396

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    Handle: RePEc:eee:finmar:v:13:y:2010:i:4:p:367-396

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    Web page: http://www.elsevier.com/locate/finmar

    Related research

    Keywords: Trading Location Data center Execution speed Execution costs;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Lo, Andrew W. & MacKinlay, A. Craig & Zhang, June, 2002. "Econometric models of limit-order executions," Journal of Financial Economics, Elsevier, vol. 65(1), pages 31-71, July.
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    6. Garvey, Ryan & Wu, Fei, 2009. "Intraday time and order execution quality dimensions," Journal of Financial Markets, Elsevier, vol. 12(2), pages 203-228, May.
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    14. Battalio, Robert & Hatch, Brian & Jennings, Robert, 2003. "All else equal?: a multidimensional analysis of retail, market order execution quality," Journal of Financial Markets, Elsevier, vol. 6(2), pages 143-162, April.
    15. Glosten, Lawrence R, 1994. " Is the Electronic Open Limit Order Book Inevitable?," Journal of Finance, American Finance Association, vol. 49(4), pages 1127-61, September.
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    Cited by:
    1. Hoffmann, Peter, 2013. "A dynamic limit order market with fast and slow traders," Working Paper Series 1526, European Central Bank.
    2. Hoffmann, Peter, 2012. "A dynamic limit order market with fast and slow traders," MPRA Paper 44621, University Library of Munich, Germany, revised Jan 2013.
    3. Hoffmann, Peter, 2012. "A dynamic limit order market with fast and slow traders," MPRA Paper 39855, University Library of Munich, Germany.

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