Research Seminar: Fast Aggressive Trading

When:21 October 2015
, 10:30
 - 11:30
Where:House of Finance, Room E.20

Speaker: Prof. Richard Payne (Cass Business School)

Abstract: In this paper, we subdivide trades on the London Stock Exchange according to their reaction times. We classify an aggressive order as 'fast' if it executes against a standing limit order that is less than 50 milliseconds old. We show that fast trades are associated with smaller execution costs than slow trades. However, fast trades lead to virtually no permanent price impact while slow trades have the usual positive long run price impacts. We find little evidence that fast traders manipulate counter-parties into trading with them at improved prices. Overall, the subset of fast traders we isolate are fairly innocuous. This suggests that regulating trading speed in order to curb issues thought to be associated with high-frequency trading may be at best a very blunt tool and, at worst, may impose significant costs on those who use low-latency systems to execute efficiently.

 

Faculty, graduate students, and researchers at Goethe University, as well as interested researchers from the area are cordially invited to attend at no cost. Registration is required online.