Référence

Albert J. Menkveld (VU University Amsterdam), « Middlemen in Limit-Order Markets », Fédération des Banques Françaises Seminar, TSE, 19 novembre 2012, 12h30–14h00, salle MF 323.

Résumé

A limit-order market enables an early seller to trade with a late buyer by leaving a price quote. But, public news in the interarrival period creates adverse selection for the seller and therefore hampers trade. Machines, operated by high-frequency traders (HFTs), might restore trade by bringing the capacity to quickly update quotes on news. A theoretical model shows that HFT entry can indeed increase welfare, but it might also reduce it. Empirically, HFT entry coincided with a 23% drop in adverse-selection cost on price quotes and a 17% increase in trade frequency. Model calibration reveals a modest welfare increase.

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