41 research outputs found
Competing on Speed
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 regulation 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 Reg. NMS, and provides some guidance for optimal regulations.
Asset Pricing Frictions in Fragmented Markets
We study the consequences of trading fragmentation and speed on
liquidity and asset prices. Exchanges invest in speed-enhancing
technologies and price trading services to attract investors. Investors
trade due to idiosyncratic preference shocks. We show how the resulting
market organization affects asset liquidity and the composition of
participating investors. In a consolidated market, speed investments
raise liquidity and prices. When markets fragment, liquidity and asset
prices can move in opposite directions. We also show how mechanisms that
protect execution prices, such as the SEC’s trade-through rule,
can decrease price levels and trading volume relative to unregulated
markets. Our results suggest that recent regulatory reforms in secondary
markets may have unintended negative consequences for public corporations
Competing on Speed
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
regulation 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 Reg. NMS, and
provides some guidance for optimal regulations
Competing on Speed
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
Competing on Speed
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
regulation 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 Reg. NMS, and
provides some guidance for optimal regulations
Competing on Speed
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
Non-Standard Errors
In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: Non-standard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for better reproducible or higher rated research. Adding peer-review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants