Publications
Need for Speed? Exchange Latency and Liquidity, 2017, with Albert J. Menkveld
Review of Financial Studies, 30 (2017), 1188--1228 [slides] [Bloomberg, VoxEU coverage]
Review of Financial Studies, 30 (2017), 1188--1228 [slides] [Bloomberg, VoxEU coverage]
Speeding up the exchange does not necessarily improve liquidity. Since HFTs employ both market-making and arbitrage strategies, the net effect of a faster market depends on a security’s news-to-liquidity-trader ratio.
Too-International-to-Fail? Supranational Bank Resolution and Market Discipline, 2016, with Lucy Gornicka
Journal of Banking and Finance 65 (2016), 41--58 [slides] [VoxEU coverage]
Journal of Banking and Finance 65 (2016), 41--58 [slides] [VoxEU coverage]
Supranational regulators are more inclined to bail-out banks indebted towards international creditors because they take into account cross-border contagion. When banks' creditors are more likely to be bailed out, market discipline decreases.
Working papers
Do speed bumps curb speed investment? Evidence from a pilot experiment, 2019, with Mariana Khapko
In a market design pilot experiment conducted at the University of Toronto, we find that introducing a speed bump reduces arbitrageurs' investment in speed by 22%. However, conditional on an existing speed bump, imposing a longer order delay increases speed investment by 11%, as arbitrageurs try to outrace each other. The results directly speak to the current debate about over-investment in low-latency technology.
Funds use proceeds from lending out securities to offset management fees. If lending revenues are correlated with short-selling demand, security lending generates a hedging benefit that funds do not internalize. Investors are better off receiving dividends rather than fee discounts. Further, “free” funds may limit investors' ability to benefit from technological improvements. To improve revenue disclosure standards, efficiency in the asset management industry needs to improve beyond the point where zero-fee funds become sustainable.
How fast should trades settle?, 2019, with Mariana Khapko
[slides] [The Conversation (French) coverage]
Revise and Resubmit at Management Science
[slides] [The Conversation (French) coverage]
Revise and Resubmit at Management Science
Does faster settlement benefit markets? Real-time settlement, coupled with a flexible option-like penalty for failures-to-deliver, disciplines competition on securities lending markets, reduces borrowing costs, and therefore improves market quality. Our results support the ongoing reforms around the globe to shorten settlement cycles and offer insights on how to reduce the costs associated with fast settlement.
Speed and Learning in High-Frequency Auctions, 2018, with Marlene Haas and Mariana Khapko
[The Conversation (French) coverage] [Josseph de la Vega Award 2016]
[The Conversation (French) coverage] [Josseph de la Vega Award 2016]
On high-frequency batch auctions markets, the HFT ``arms' race'' in speed stimulates price competition between arbitrageurs and improves liquidity.
Does Central Clearing Affect Price Stability? Evidence from Nordic Equity Markets, 2015, with Albert J. Menkveld and Emiliano Pagnotta, R&R at Journal of Financial Economics
We provide evidence of the effects of introducing a central clearing counterparty (CCP) on price stability using a 2009 clearing reform in three Nordic equity markets. We find that volatility drops by 8.8% relative to pre-reform levels.