Do Speed Bumps Curb Speed Investment? Evidence from a Pilot Experiment

39 Pages Posted: 25 Mar 2019

See all articles by Mariana Khapko

Mariana Khapko

University of Toronto - Finance Area; Swedish House of Finance

Marius Zoican

University of Toronto - Rotman School of Management; University of Toronto at Mississauga - Department of Management

Date Written: March 12, 2019

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 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

Khapko, Mariana and Zoican, Marius, Do Speed Bumps Curb Speed Investment? Evidence from a Pilot Experiment (March 12, 2019). Available at SSRN: https://ssrn.com/abstract=3351269 or http://dx.doi.org/10.2139/ssrn.3351269

Mariana Khapko

University of Toronto - Finance Area ( email )

Toronto, Ontario M5S 3E6
Canada

Swedish House of Finance ( email )

Drottninggatan 98
Stockholm
Sweden

Marius Zoican (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.mariuszoican.org

University of Toronto at Mississauga - Department of Management ( email )


Canada

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