Do Speed Bumps Curb Low-Latency Investment? Evidence From a Laboratory Market

40 Pages Posted: 25 Mar 2019 Last revised: 11 Feb 2022

See all articles by Mariana Khapko

Mariana Khapko

University of Toronto - Finance Area; Swedish House of Finance

Marius Zoican

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

Date Written: July 20, 2020

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 technology. We find that asymmetric speed bumps, on average, reduce investment in speed by only 20%. Increasing the magnitude of the speed bump by one standard deviation further reduces low-latency investment by 8.33%. Finally, introducing a symmetric speed bump leads to the same investment level as no speed bump at all.

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 Low-Latency Investment? Evidence From a Laboratory Market (July 20, 2020). Journal of Financial Markets, Volume 55, September 2021, 100601, 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 at Mississauga - Department of Management ( email )


Canada

University of Toronto - Rotman School of Management ( email )

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

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

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
238
Abstract Views
1,485
Rank
233,596
PlumX Metrics