EconPapers    
Economics at your fingertips  
 

Equilibrium Fast Trading

Bruno Biais, Thierry Foucault and Sophie Moinas

No 769, IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse

Abstract: High-speed market connections and information processing improve the ability to seize trading opportunities, raising gains from trade. They also enable fast traders to process information before slow traders, generating adverse selection, and thus negative externalities. When investing in fast trading technologies, institutions do not internalize these externalities. Accordingly, they overinvest in equilibrium. Completely banning fast trading is dominated by offering two platforms: one accepting fast traders, the other banning them. Utilitarian welfare is maximized by having i) a single platform on which fast and slow traders coexist and ii) Pigovian taxes on investment in the fast trading technology

Keywords: high-frequency trading; externalities; welfare (search for similar items in EconPapers)
JEL-codes: D4 D62 G1 G20 L1 (search for similar items in EconPapers)
Date: 2013-03, Revised 2014-09
New Economics Papers: this item is included in nep-cta and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://idei.fr/doc/by/moinas/bfm_sept2014.pdf Full text (application/pdf)
http://idei.fr/doc/by/moinas/OnlineAppendix_bfm_sept2014.pdf Appendix (application/pdf)

Related works:
Journal Article: Equilibrium fast trading (2015) Downloads
Working Paper: Equilibrium fast trading (2015)
Working Paper: Equilibrium Fast Trading (2014)
Working Paper: Equilibrium Fast Trading (2013) Downloads
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:ide:wpaper:27008

Access Statistics for this paper

More papers in IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-30
Handle: RePEc:ide:wpaper:27008