The market quality implications of speed in cross-platform trading: Evidence from Frankfurt-London microwave networks

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

Exploiting information transmission latency between exchanges in Frankfurt and London, and speed-inducing technological upgrades, we show that when cross-market latency arbitrage opportunities are linked to the arrival of information, high-frequency trading (HFT) activity impairs liquidity and enhances price discovery by facilitating the incorporation of public information into prices. Conversely, when cross-market latency arbitrage opportunities are driven by liquidity shocks, HFT improves liquidity and reduces trading costs, thus incentivizing information acquisition and trading with private information. These findings underscore the complex nature of the association between trading speed and market quality and reconcile mixed evidence in the extant literature.
Original languageEnglish
Article number100853
Pages (from-to)1-24
Number of pages24
JournalJournal of Financial Markets
Volume66
Early online date8 Jul 2023
DOIs
Publication statusPublished - Nov 2023

Keywords / Materials (for Non-textual outputs)

  • transmission latency
  • microwave connection
  • high-frequency trading
  • liquidity
  • price discovery

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