EconPapers    
Economics at your fingertips  
 

Are the stock markets “rigged”? An empirical analysis of regulatory change

Stephen F. Diamond and Jennifer W. Kuan

International Review of Law and Economics, 2018, vol. 55, issue C, 33-40

Abstract: Volatile events in the stock market such as the 2010 Flash Crash have sparked concern that financial markets are “rigged” in favor of trading firms that use high frequency trading (“HFT”) systems. We analyze a regulatory change implemented by the SEC in 2007 by examining its effect on a key market metric, the bid-ask spread, an investor cost, and find that the regulatory shift, indeed, disadvantages investors. We link the implementation of this change to a shift in the volume of trades from a low-cost venue to a high-cost venue. We argue that this outcome is predicted by the incentives of the venues, non-profit stock exchanges owned by different types of members. The less-volatile, lower-cost New York Stock Exchange was owned by underwriters and included a specialist system that is less vulnerable to HFT tactics that can disadvantage investors.

Keywords: Stock market; High frequency trading; Flash crashes; Non-profit; SEC (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0144818818300498
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:55:y:2018:i:c:p:33-40

Access Statistics for this article

International Review of Law and Economics is currently edited by C. Ott, A. W. Katz and H-B. Schäfer

More articles in International Review of Law and Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-06-22
Handle: RePEc:eee:irlaec:v:55:y:2018:i:c:p:33-40