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Do speed bumps curb low-latency investment? Evidence from a laboratory market

Mariana Khapko and Marius Zoican

Journal of Financial Markets, 2021, vol. 55, issue C

Abstract: Exchanges implement intentional trade delays to limit the harmful impact of low-latency trading. Do such “speed bumps” curb investment in fast trading technology? Data are scarce since trading technologies are proprietary. We build an experimental trading platform where participants face speed bumps and can invest in fast trading technology. We find that asymmetric speed bumps, on average, reduce investment in speed by only 20%. Increasing the magnitude of the speed bump by one standard deviation further reduces low-latency investment by 8.33%. Finally, introducing a symmetric speed bump leads to the same investment level as no speed bump at all.

Keywords: High-frequency trading; Experimental finance; Speed bumps; Trading technology (search for similar items in EconPapers)
JEL-codes: C90 G11 G14 G40 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:55:y:2021:i:c:s1386418120300707

DOI: 10.1016/j.finmar.2020.100601

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