Do "speed bumps" prevent accidents in financial markets?
- Is it true that speed bumps level the playing field, make financial markets more stable and reduce negative externalities of high-frequency trading (HFT) firms? We examine how the implementation of a particular speed bump – Midpoint Extended Life order (M-ELO) on Nasdaq impacted financial markets stability in terms of occurrences of mini-flash crashes in individual securities. We use high-frequency order book message data around the implementation date and apply difference-in-differences analysis to estimate the average treatment effect of the speed bump on market stability and liquidity provision. The results suggest that the introduction of the M-ELO decreases the average number of crashes on Nasdaq compared to other exchanges by 4.7%. Liquidity provision by HFT firms also improves. These findings imply that technology-based solutions by exchanges are feasible alternatives to regulatory intervention towards safer markets.
Author: | Jorge GonçalvesGND, Roman KräusslORCiDGND, Vladimir Levin |
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URN: | urn:nbn:de:hebis:30:3-515971 |
URL: | https://ssrn.com/abstract=3478856 |
Parent Title (English): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 636 |
Series (Serial Number): | CFS working paper series (636) |
Publisher: | Center for Financial Studies |
Place of publication: | Frankfurt, M. |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2019 |
Year of first Publication: | 2019 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2019/11/04 |
Tag: | Mini-flash crash; midpoint extended life order; speed bump |
Issue: | This version - July 2019 |
Page Number: | 32 |
HeBIS-PPN: | 456513337 |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
JEL-Classification: | C Mathematical and Quantitative Methods / C2 Single Equation Models; Single Variables / C21 Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions (Updated!) |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |