Trading Fast and Slow: Colocation and Liquidity

• 成果类型: Article
• 署名作者: Brogaard, Jonathan; Hagstromer, Bjorn; Norden, Lars; Riordan, Ryan
• 署名单位: University of Washington; University of Washington Seattle; Stockholm University; Queens University - Canada
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhv045
• 发表日期: 2015
• 页码: 3407
• 关键词: market

摘要

We exploit an optional colocation upgrade at NASDAQ OMX Stockholm to assess how speed affects market liquidity. Liquidity improves for the overall market and even for noncolocated trading entities. We find that the upgrade is pursued mainly by participants who engage in market making. Those that upgrade use their enhanced speed to reduce their exposure to adverse selection and to relax their inventory constraints. In particular, the upgraded trading entities remain competitive at the best bid and offer even when their inventories are in their top decile. Our results suggest that increasing the speed of market-making participants benefits market liquidity.