Siphoned apart: A portfolio perspective on order flow segmentation

• 成果类型: Article
• 署名作者: Baldauf, Markus; Mollner, Joshua; Yueshen, Bart Zhou
• 署名单位: University of British Columbia; Northwestern University; Singapore Management University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2024.103807
• 发表日期: 2024
• 关键词: Order flow segmentation; Payment for order flow; Inventory management; Market making; Retail trading

摘要

We study liquidity supply in fragmented markets. Market makers intermediate heterogeneous order flows, trading off spread revenue against inventory costs. Applying our model to payment for order flow (PFOF), we demonstrate that portfolio -based considerations of inventory management incentivize market makers to segment retail orders by siphoning them off -exchange. Banning order flow segmentation reduces total welfare, can make trading more costly for all investors, and can resolve a prisoner's dilemma among market makers. These results differentiate our inventory -based model from the existing information -based theories of PFOF.