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Competing on speed

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Title: Competing on speed
Authors: Pagnotta, ES
Philippon, T
Item Type: Journal Article
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 e ffi ciency, but entry and fragmentation can be excessive, and speeds are generically ine ffi cient. 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.
Issue Date: 24-May-2018
Date of Acceptance: 27-Dec-2017
URI: http://hdl.handle.net/10044/1/60285
DOI: https://dx.doi.org/10.3982/ECTA10762
ISSN: 0012-9682
Publisher: Econometric Society
Start Page: 1067
End Page: 1115
Journal / Book Title: Econometrica
Volume: 86
Issue: 3
Copyright Statement: © 2018 The Econometric Society. The copyright to this article is held by the Econometric Society, http://www.econometricsociety.org/. It may be downloaded, printed and reproduced only for personal or classroom use. Absolutely no downloading or copying may be done for, or on behalf of, any for-profit commercial firm or for other commercial purpose without the explicit permission of the Econometric Society.
Keywords: Social Sciences
Science & Technology
Physical Sciences
Economics
Mathematics, Interdisciplinary Applications
Social Sciences, Mathematical Methods
Statistics & Probability
Business & Economics
Mathematics
Mathematical Methods In Social Sciences
Trading speed
exchanges
liquidity
fragmentation
segmentation
vertical differentiation
search
high-frequency trading
regulation
trade-through rule
investor participation
entry
THE-COUNTER MARKETS
TRADING VOLUME
ASSET MARKETS
LIQUIDITY
QUALITY
ENTRY
SEARCH
1401 Economic Theory
1403 Econometrics
1505 Marketing
Econometrics
Publication Status: Published
Online Publication Date: 2018-01-11
Appears in Collections:Imperial College Business School



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