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

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  • Garvey, Ryan
  • Wu, Fei

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.

Suggested Citation

  • Garvey, Ryan & Wu, Fei, 2010. "Speed, distance, and electronic trading: New evidence on why location matters," Journal of Financial Markets, Elsevier, vol. 13(4), pages 367-396, November.
  • Handle: RePEc:eee:finmar:v:13:y:2010:i:4:p:367-396
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    References listed on IDEAS

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    Citations

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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. Thierry Foucault & Roman Kozhan & Wing Wah Tham, 2017. "Toxic Arbitrage," Review of Financial Studies, Society for Financial Studies, vol. 30(4), pages 1053-1094.
    3. Ben Omrane, Walid & Welch, Robert, 2016. "Tick test accuracy in foreign exchange ECN markets," Research in International Business and Finance, Elsevier, vol. 37(C), pages 135-152.
    4. Murray, Hamish & Pham, Thu Phuong & Singh, Harminder, 2016. "Latency reduction and market quality: The case of the Australian Stock Exchange," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 257-265.
    5. Thierry Foucault & Sophie Moinas & Bruno Biais, 2014. "Equilibrium Fast Traders," 2014 Meeting Papers 1207, Society for Economic Dynamics.
    6. Hoffmann, Peter, 2014. "A dynamic limit order market with fast and slow traders," Journal of Financial Economics, Elsevier, vol. 113(1), pages 156-169.
    7. Hoffmann, Peter, 2012. "A dynamic limit order market with fast and slow traders," MPRA Paper 39855, University Library of Munich, Germany.
    8. Hoffmann, Peter, 2012. "A dynamic limit order market with fast and slow traders," MPRA Paper 44621, University Library of Munich, Germany, revised Jan 2013.

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