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In 2004 all publications will carry a motif taken from the €100 banknote. Network in Frankfurt for their comments.We gratefully acknowledge the support of MTS Spa and Barbara Rindi in building the database. For research assistance, we are grateful to Patricia van Dam.The usual disclaimer applies. Telex 411 144 ecb d All rights reserved. Reproduction for(More)
This paper reviews recent theoretical and empirical research on high-frequency trading (HFT). Economic theory identifies several ways that HFT could affect liquidity. The main positive is that HFT can intermediate trades at lower cost. However, HFT speed could disadvantage other investors, and the resulting adverse selection could reduce market quality.(More)
Common wisdom has it that competition between trading platforms in securities markets benefits investors because it forces platforms to charge smaller fees. We challenge this view by showing that a decrease in trading fees can impair investors' expected welfare in limit order markets. Indeed, a decrease in trading fees can induce investors to strategically(More)
This paper studies the ability of non-informational order imbalances (buy minus sell volume) to predict daily stock returns at the market level. Using a model with three types of participants (an informed trader, liquidity traders, and a finite number of arbitrageurs), we derive predictions relating returns to lagged returns and lagged order imbalances.(More)
This paper presents preliminary findings and is being distributed to economists and other interested readers solely to stimulate discussion and elicit comments. The views expressed in the paper are those of the authors and are not necessarily reflective of views at the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions(More)
Core-periphery trading networks arise endogenously in over-the-counter markets as an equilibrium balance between trade competition and inventory efficiency. A small number of firms emerge as core dealers to intermediate trades among a large number of peripheral firms. The equilibrium number of dealers depends on two countervailing forces: (i) competition(More)