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

Listed author(s):
  • James J. Angel
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    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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    File URL: http://arxiv.org/pdf/1401.2982
    File Function: Latest version
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    Paper provided by arXiv.org in its series Papers with number 1401.2982.

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    Date of creation: Jan 2014
    Handle: RePEc:arx:papers:1401.2982
    Contact details of provider: Web page: http://arxiv.org/

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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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