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When Finance Meets Physics: The Impact of the Speed of Light on Financial Markets and their Regulation

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  • James J. Angel

Abstract

Modern physics has demonstrated that matter behaves very differently as it approaches the speed of light. This paper explores the implications of modern physics to the operation and regulation of financial markets. Information cannot move faster than the speed of light. The geographic separation of market centers means that relativistic considerations need to be taken into account in the regulation of markets. Observers in different locations may simultaneously observe different best prices. Regulators may not be able to determine which transactions occurred first, leading to problems with best execution and trade-through rules. Catastrophic software glitches can quantum tunnel through seemingly impregnable quality control procedures.

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  • James J. Angel, 2014. "When Finance Meets Physics: The Impact of the Speed of Light on Financial Markets and their Regulation," Papers 1401.2982, arXiv.org.
  • Handle: RePEc:arx:papers:1401.2982
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    1. Emiliano Pagnotta & Thomas Philippon, 2011. "Competing on Speed," NBER Working Papers 17652, National Bureau of Economic Research, Inc.
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    1. repec:kap:jbuset:v:147:y:2018:i:4:d:10.1007_s10551-016-3391-4 is not listed on IDEAS
    2. Craig W. Holden & Stacey Jacobsen & Avanidhar Subrahmanyam, 2014. "The Empirical Analysis of Liquidity," Foundations and Trends(R) in Finance, now publishers, vol. 8(4), pages 263-365, December.

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