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When do regulatory interventions work?

Author

Listed:
  • Nidhi Aggarwal
  • Venkatesh Panchapagesan
  • Susan Thomas

Abstract

Previous studies find mixed results about how a fee on high order-to-trade (OTR) ratios impacts market quality. Using a natural experiment where such a fee was introduced twice for different reasons, this paper finds evidence of impact only when the implementation matched the motive. The paper used a difference-in-difference regression, that exploits microstructure features, to find causal evidence of lower aggregate OTR and higher market quality when the fee was used to manage limited exchange infrastructure, but little to no change in the OTRs or market quality when it was used for a regulatory need to slow down high frequency trading.

Suggested Citation

  • Nidhi Aggarwal & Venkatesh Panchapagesan & Susan Thomas, 2019. "When do regulatory interventions work?," Working Papers id:13040, eSocialSciences.
  • Handle: RePEc:ess:wpaper:id:13040
    Note: Institutional Papers
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    eSS; Algorithmic trading; financial regulation; market efficiency; market liquidity; financial derivatives; order-to-trade (OTR); market; infrastructure; microstructure features; high frequency trading.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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