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.
Marius Zoican
Associate Professor of Finance
I study the impact of (new) technology on securities exchanges and asset management, as well as how to leverage technological innovations to build a better market.