VGSF - WU Vienna - LC

Christian Westheide, University of Vienna

Campus University of Vienna Seminar Room 4 11:45 - 12:45

Organizer WU Vienna

This Fin­ance Brown Bag Sem­inar is held by the De­part­ment of Fin­ance (Uni­versity of Vi­enna) and the Vi­enna Gradu­ate School of Fin­ance (VGSF). It serves as a present­a­tion plat­form for PhD stu­dents, fac­ulty mem­bers, and vis­it­ors.


August 14th, 2019, 11:45-12:45, Cam­pus Uni­versity of Vi­enna, Sem­inar Room 4

Chris­tian West­heide, Uni­versity of Vi­enna

Title: "A Tale of Two Cit­ies: In­ter­-­Mar­ket Latency, Mar­ket In­teg­ra­tion, and Mar­ket Qual­ity"


We study the in­tro­duc­tion of a mi­crowave link between Frank­furt and Lon­don and identify its ef­fects on Ger­man stocks that trade in both loca­tions us­ing a dif­fer­ence-in-dif­fer­ences set­ting with French firms that trade only in Lon­don as the con­trol group. We find that the link im­proves the in­teg­ra­tion between the two mar­kets as evid­enced by a re­duc­tion in ar­bit­rage op­por­tun­it­ies. Trad­ing volume shifts to­wards Frank­furt as in­vestors - con­cerned about an in­crease in speed dis­per­sion vis-à-vis high-­fre­quency traders - re­duce order split­ting across the two cit­ies. The ef­fects on mar­ket qual­ity out­comes dif­fer across stocks as high-­fre­quency traders stra­tegic­ally util­ize the speed ad­vant­age res­ult­ing from the mi­crowave link to sup­ply or con­sume li­quid­ity. In Lon­don, mid cap stocks be­ne­fit from in­creased li­quid­ity pro­vi­sion whereas order flow for large stocks be­comes more toxic. Lon­don's in­creased com­pet­it­ive­ness for mid cap stocks also trans­lates into an in­crease in its in­form­a­tion share, while the in­form­a­tion shares of large cap stocks are un­changed. These res­ults sug­gest that mar­ket in­teg­ra­tion dif­fer­ently af­fects in­vestors based on their speed ad­vant­age, trad­ing ven­ues based on their level of com­pet­it­ive­ness, and stocks based on their size.

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