Latency in Fragmented Markets

Tomy Lee

Review of Economic Dynamics, 2019, vol. 33, 128-153

Abstract: I examine the impact of cross-venue latency on market quality using a model of informed trader competition in a fragmented market. As cross-venue latency decreases, liquidity and price discovery improve while the expected profits of informed traders decline. Moreover, a fall in the latency of one venue can harm liquidity at the other venue. An extension predicts that, as the informed traders consolidate or outsource trading, benefits of shorter cross-venue latency are attenuated and its harmful effects intensify. My model generates testable predictions about the effects of changes in cross-venue latency on market quality. (Copyright: Elsevier)

Keywords: Latency; Market fragmentation; Liquidity; Price discovery (search for similar items in EconPapers)
JEL-codes: D4 D62 G1 G20 L1 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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DOI: 10.1016/j.red.2019.04.010

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