Do Speed Bumps Curb Speed Investment? Evidence from a Pilot Experiment
39 Pages Posted: 25 Mar 2019
Date Written: March 12, 2019
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 is scarce since trading technologies are proprietary. We build an experimental trading platform where participants face speed bumps and can invest in fast trading and private signal technologies. A pilot experiment study with financial markets students suggests that the introduction of a speed bump reduces investment in low-latency technology by 22%. However, conditional on implementation, a one standard-deviation longer speed bump increases investment in low-latency technology by 11%, as fast speculators compete with each other.
Keywords: high-frequency trading, experimental finance, speed bumps, trading technology
JEL Classification: C90, G11, G14, G40
Suggested Citation: Suggested Citation