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Adverse Selection, Speed Bumps and Asset Market Quality

Author

Listed:
  • Alasdair Brown

    (University of East Anglia)

  • Fuyu Yang

    (University of East Anglia)

Abstract

Recent evidence suggests that the fastest algorithmic traders in financial markets profit at the expense of slower traders. One solution gaining traction is a `speed-bump', which introduces a delay between the time in which an order is submitted, and when it is processed. We conduct an impact evaluation of the speed bump's effectiveness on Betfair, a betting exchange, where this design has been in force for more than a decade. We find that increases in the duration of the delay led to improvements in liquidity (measured by bid-ask spreads and depth) and market quality (measured by order frequency and volume).

Suggested Citation

  • Alasdair Brown & Fuyu Yang, 2015. "Adverse Selection, Speed Bumps and Asset Market Quality," University of East Anglia Applied and Financial Economics Working Paper Series 070, School of Economics, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:aepppr:2012_70
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    File URL: https://ueaeco.github.io/working-papers/papers/afe/UEA-AFE-070.pdf
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    References listed on IDEAS

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    Cited by:

    1. Vasilios Mavroudis, 2019. "Market Manipulation as a Security Problem," Papers 1903.12458, arXiv.org.
    2. Vasilios Mavroudis & Hayden Melton, 2019. "Libra: Fair Order-Matching for Electronic Financial Exchanges," Papers 1910.00321, arXiv.org.

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