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The effect of fast trading on price discovery and efficiency: Evidence from a betting exchange

Paolo Bizzozero, Raphael Flepp and Egon Franck ()

Journal of Economic Behavior & Organization, 2018, vol. 156, issue C, 126-143

Abstract: We examine how the presence of fast traders impacts price discovery and efficiency in a real-world setting, i.e., courtsiding, the activity of live betting from a tennis stadium. This setting allows us to isolate the activity of fast-acting traders who have a short-term monopolistic access to important information with respect to other traders who trade based on delayed TV images. Using live-tennis betting data combined with detailed point-by-point match data, our results show that courtsider trading promotes quick price discovery and correctly incorporates new information into prices. We estimate that a simple trading strategy yields a positive trading return to fast traders after the occurrence of important informational events.

Keywords: Price discovery; Efficiency; Fast trading; Speed differentials; Betting (search for similar items in EconPapers)
JEL-codes: G10 G14 L83 (search for similar items in EconPapers)
Date: 2018
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