Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
6894655 | European Journal of Operational Research | 2018 | 11 Pages |
Abstract
This paper derives an optimal timing strategy for a regular slow trader considering investing in a high-frequency trading (HFT) technology. The market is fragmented, and slow traders compete with fast traders for trade execution. Given this optimal timing rule, I then characterise the equilibrium level of fast trading in the market as well as the welfare-maximising socially optimal level. I show that there is always a unique cost of investment such that the equilibrium level of fast trading and the socially optimal level coincide. Finally I discuss potential policy responses to addressing equilibrium and social optimality misalignment in HFT.
Related Topics
Physical Sciences and Engineering
Computer Science
Computer Science (General)
Authors
Laura Delaney,