Strategic fragmented markets

Latency arbitrage in fragmented markets: A strategic agent-based analysis

We study the effect of latency arbitrage on allocative efficiency and liquidity in fragmented financial markets. We employ a simple model of latency arbitrage in which a single security is traded on two exchanges, with price quotes available to regular traders only after some delay. An infinitely fast arbitrageur reaps profits when the two markets diverge due to this latency in cross-market com...

On Fragmented Markets (DRAFT)

Centralized markets reduce the costs of search for buyers and sellers. More importantly, their ‘thickness’ increases the chance of of order execution at competitive prices. In spite of the incentives to consolidate, some markets, securities markets being the most notable, have fragmented into multiple trading venues. We argue in this paper that fragmentation is an unavoidable feature of any cen...

Price Discovery in Fragmented Markets

This paper proposes a structural time series model for the intra-day price dynamics on fragmented financial markets. We generalize the structural model of Hasbrouck (1993) to a multi-variate setting. We discuss identification issues and propose a new measure for the contribution of each market to price discovery. We illustrate the model by an empirical example using Nasdaq dealer quotes.

Asset Pricing Frictions in Fragmented Markets

Strategic Behavior in Matching Markets

Centralized two-sided markets, such as the market for medical residents, often rely on a stable matching mechanism to determine a matching between participants. Because no stable matching mechanism can induce truth-telling as a dominant strategy for all participants, there is always some room in these markets for strategic misrepresentation. In this paper we study optimal strategic misrepresent...