Equilibrium Fast Trading
AbstractHigh-speed market connections and information processing improve the ability to seize trading opportunities, raising gains from trade. They also enable fast traders to process 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 platforms: one accepting fast traders, the other banning them. Utilitarian welfare is maximized by having i) a single platform on which fast and slow traders coexist and ii) Pigovian taxes on investment in the fast-trading technology
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Bibliographic InfoPaper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 13-387.
Date of creation: Mar 2013
Date of revision: Mar 2014
Other versions of this item:
- Biais, Bruno & Foucault, Thierry & Moinas, Sophie, 2013. "Equilibrium Fast Trading," Les Cahiers de Recherche 968, HEC Paris.
- Biais, Bruno & Foucault, Thierry & Moinas, Sophie, 2013. "Equilibrium Fast Trading," IDEI Working Papers 769, Institut d'Économie Industrielle (IDEI), Toulouse, revised Mar 2014.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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