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Non-standard errors
(2021)
In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in sample estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: non-standard errors. To study them, we let 164 teams test six hypotheses on the same sample. We find that non-standard errors are sizeable, on par with standard errors. Their size (i) co-varies only weakly with team merits, reproducibility, or peer rating, (ii) declines significantly after peer-feedback, and (iii) is underestimated by participants.
Colocation services offered by stock exchanges enable market participants to achieve execution costs for large orders that are substantially lower and less sensitive to transacting against high-frequency traders. However, these benefits manifest only for orders executed on the colocated brokers' own behalf, whereas customers' order execution costs are substantially higher. Analyses of individual order executions indicate that customer orders originating from colocated brokers are less actively monitored and achieve inferior execution quality. This suggests that brokers do not make effective use of their technology, possibly due to agency frictions or poor algorithm selection and parameter choice by customers.
We examine the impact of increasing competition among the fastest traders by analyzing a new low-latency microwave network connecting exchanges trading the same stocks. Using a difference-in-differences approach comparing German stocks with similar French stocks, we find improved market integration, faster incorporation of stock-specific information, and an increased contribution to price discovery by the smaller exchange. Liquidity worsens for large caps due to increased sniping but improves for mid caps due to fast liquidity provision. Trading volume on the smaller exchange declines across all stocks. We thus uncover nuanced effects of fast trader participation that depend on their prior involvement.