|
Archive@NYU >
Stern School of Business >
Finance Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/31437
|
| Title: | Competing on Speed |
| Authors: | Pagnotta, Emiliano
Philippon, Thomas |
| Issue Date: | 11-Jan-2012 |
| Series/Report no.: | FIN-11-058 |
| Abstract: | Two forces have reshaped global securities markets in the last decade:
Exchanges operate at much faster speeds and the trading landscape has
become more fragmented. In order to analyze the positive and normative
implications of these evolutions, we study a framework that captures (i)
exchanges’ incentives to invest in faster trading technologies and
(ii) investors’ trading and participation decisions. Our model
predicts that regulations that protect prices will lead to fragmentation
and faster trading speed. Asset prices decrease when there is
intermediation competition and are further depressed by price
protection. Endogenizing speed can also change the slope of asset demand
curves. On normative side, we find that for a given number of exchanges,
faster trading is in general socially desirable. Similarly, for a given
trading speed, competition among exchange increases participation and
welfare. However, when speed is endogenous, competition between
exchanges is not necessarily desirable. In particular, speed can be
inefficiently high. Our model sheds light on important features of the
experience of European and U.S. markets since the implementation of
MiFID and Reg. NMS, and provides some guidance for optimal regulations. |
| URI: | http://hdl.handle.net/2451/31437 |
| Appears in Collections: | Finance Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
