Spoofing in Equilibrium

50 Pages Posted: 1 Feb 2021 Last revised: 14 Jun 2021

See all articles by Basil Williams

Basil Williams

New York University (NYU)

Andrzej Skrzypacz

Stanford University - Stanford Graduate School of Business

Date Written: December 3, 2020


We present a model of dynamic trading with exogenous and strategic cancellation of orders. We define spoofing as the strategic placing and canceling of orders in order to move prices and trade later in the opposite direction. We show that spoofing can occur in equilibrium. Consistent with regulator concerns, we show that spoofing slows price discovery, raises bid-ask spreads, and raises return volatility. A novel prediction is that the prevalence of equilibrium spoofing is single-peaked in the measure of informed traders, suggesting that spoofing should be more prevalent in markets of intermediate liquidity. We consider within-market and cross-market spoofing and discuss how regulators should allocate resources towards cross-market surveillance.

Keywords: market microstructure, manipulation, spoofing

JEL Classification: G10, G14, G28

Suggested Citation

Williams, Basil and Skrzypacz, Andrzej, Spoofing in Equilibrium (December 3, 2020). Stanford University Graduate School of Business Research Paper , Available at SSRN: https://ssrn.com/abstract=3742327 or http://dx.doi.org/10.2139/ssrn.3742327

Basil Williams (Contact Author)

New York University (NYU) ( email )

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New York, NY 10003-711
United States

Andrzej Skrzypacz

Stanford University - Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-736-0987 (Phone)
650-725-9932 (Fax)

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