Every Cloud Has a Silver Lining: Fast Trading, Microwave Connectivity, and Trading Costs
Corresponding Author
ANDRIY SHKILKO
Correspondence: Andriy Shkilko, Lazaridis School of Business, Wilfrid Laurier University; e-mail: ashkilko@wlu.ca.
Search for more papers by this authorKONSTANTIN SOKOLOV
Andriy Shkilko is with Lazaridis School of Business, Wilfrid Laurier University. Konstantin Sokolov is with Fogelman College of Business and Economics, University of Memphis. We thank Stefan Nagel (the Editor); an anonymous Associate Editor; two anonymous referees; Jim Angel; Matt Barron; Robert Battalio; Ekkehart Boehmer; Jonathan Brogaard; Michael Brolley; Eric Budish; Adam Clark-Joseph; Jean-Edouard Colliard; Amy Edwards; Sean Foley; Thierry Foucault; Michael Goldstein; Björn Hagströmer; Terrence Hendershott; Peter Hoffmann; Albert Menkveld; Sophie Moinas; Peter O'Neill; Andreas Park; Lasse Pedersen; Fabricio Perez; Richard Philip; Barbara Rindi; Ryan Riordan; Elvira Sojli; Eric Stockland; Wing-Wah Tham; Erik Theissen; Tugkan Tuzun; Brian Weller; Jonathan Witmer; Bart Yueshen; Haoxiang Zhu; and the audiences at the Central Bank Microstructure Workshop, Bank of Canada, CFTC, Conference on the Econometrics of Financial Markets, EFA, FCA, Finance Down Under, FIRS, NBER Market Microstructure Meeting, Northern Finance Association, Paris Finance Meeting, SGF, Chapman University, University of Memphis, University of Sydney, and the WFE-Imperial College London Conference for comments. Daniel Ganev and Jiacheng Zhou provided research assistance. Stuart Hinson from NOAA and Jireh Ray from the CME provided data guidance. We acknowledge financial support from the Canada Research Chairs program, Canada Foundation for Innovation, Ontario Early Researcher and Graduate Scholarship programs, and the Social Sciences and Humanities Research Council of Canada. No party had the right to review the paper prior to its circulation. We have read The Journal of Finance's disclosure policy and have no conflicts of interest to disclose.
Search for more papers by this authorCorresponding Author
ANDRIY SHKILKO
Correspondence: Andriy Shkilko, Lazaridis School of Business, Wilfrid Laurier University; e-mail: ashkilko@wlu.ca.
Search for more papers by this authorKONSTANTIN SOKOLOV
Andriy Shkilko is with Lazaridis School of Business, Wilfrid Laurier University. Konstantin Sokolov is with Fogelman College of Business and Economics, University of Memphis. We thank Stefan Nagel (the Editor); an anonymous Associate Editor; two anonymous referees; Jim Angel; Matt Barron; Robert Battalio; Ekkehart Boehmer; Jonathan Brogaard; Michael Brolley; Eric Budish; Adam Clark-Joseph; Jean-Edouard Colliard; Amy Edwards; Sean Foley; Thierry Foucault; Michael Goldstein; Björn Hagströmer; Terrence Hendershott; Peter Hoffmann; Albert Menkveld; Sophie Moinas; Peter O'Neill; Andreas Park; Lasse Pedersen; Fabricio Perez; Richard Philip; Barbara Rindi; Ryan Riordan; Elvira Sojli; Eric Stockland; Wing-Wah Tham; Erik Theissen; Tugkan Tuzun; Brian Weller; Jonathan Witmer; Bart Yueshen; Haoxiang Zhu; and the audiences at the Central Bank Microstructure Workshop, Bank of Canada, CFTC, Conference on the Econometrics of Financial Markets, EFA, FCA, Finance Down Under, FIRS, NBER Market Microstructure Meeting, Northern Finance Association, Paris Finance Meeting, SGF, Chapman University, University of Memphis, University of Sydney, and the WFE-Imperial College London Conference for comments. Daniel Ganev and Jiacheng Zhou provided research assistance. Stuart Hinson from NOAA and Jireh Ray from the CME provided data guidance. We acknowledge financial support from the Canada Research Chairs program, Canada Foundation for Innovation, Ontario Early Researcher and Graduate Scholarship programs, and the Social Sciences and Humanities Research Council of Canada. No party had the right to review the paper prior to its circulation. We have read The Journal of Finance's disclosure policy and have no conflicts of interest to disclose.
Search for more papers by this authorABSTRACT
Modern markets are characterized by speed differentials, with some traders being fractions of a second faster than others. Theoretical models suggest that such differentials may have both positive and negative effects on liquidity and gains from trade. We examine these effects by studying a series of exogenous weather episodes that temporarily remove the speed advantages of the fastest traders by disrupting their microwave networks. The disruptions are associated with lower adverse selection and lower trading costs. In additional analysis, we show that the long-term removal of speed differentials results in similar effects and also increases gains from trade.
Supporting Information
| Filename | Description |
|---|---|
| jofi12969-sup-0001-OnlineAppendix.pdf442.1 KB | Appendix S1: Internet Appendix. |
| jofi12969-sup-0002-Replication-code.zip99.6 KB | Replication Code. |
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