Publication Type
Journal Article
Version
publishedVersion
Publication Date
5-2018
Abstract
We analyze trading speed and fragmentation in asset markets. In our model, trading venues make technological investments and compete for investors who choose where and how much to trade. Faster venues charge higher fees and attract speed-sensitive investors. Competition among venues increases investor participation, trading volume, and allocative efficiency, but entry and fragmentation can be excessive, and speeds are generically inefficient. Regulations that protect transaction prices (e.g., Securities and Exchange Commission trade-through rule) lead to greater fragmentation. Our model sheds light on the experience of European and U.S. markets since the implementation of Markets in Financial Instruments Directive and Regulation National Markets System.
Keywords
Trading speed, exchanges, liquidity, fragmentation, segmentation, vertical differentiation, search, high-frequency trading, regulation, trade-through rule, investor participation, entry
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
Econometrica
Volume
86
Issue
3
First Page
1067
Last Page
1115
ISSN
0012-9682
Identifier
10.3982/ECTA10762
Publisher
Econometric Society: Econometrica
Citation
PAGNOTTA, Emiliano Sebastian and PHILIPPON, Thomas.
Competing on speed. (2018). Econometrica. 86, (3), 1067-1115.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7028
Copyright Owner and License
Publisher
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.3982/ECTA10762