Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107802
Authors: 
Menkveld, Albert J.
Zoican, Marius A.
Year of Publication: 
2014
Series/Report no.: 
Tinbergen Institute Discussion Paper 14-097/IV
Abstract: 
Speeding up the exchange does not necessarily improve liquidity. The price quotes of high-frequency market makers are more likely to meet speculative high-frequency "bandits", thus less likely to meet liquidity traders. The bid-ask spread is raised in response. The recursive dynamic model reveals that there is an additional spread-widening effect as market makers earn higher rents due to economies of scope from quote monitoring. Analysis of a NASDAQ-OMX speed upgrade provides supportive evidence.
Subjects: 
market microstructure
trading speed
information asymmetry
high-frequency trading
JEL: 
G11
G12
G14
Document Type: 
Working Paper

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