High-Frequency Trading and the Design of Financial Markets
Eric Budish (Chicago) presents his research on high-frequency trading and the design of financial markets. He begins by introducing empirical facts about high-frequency trading; a theoretical critique of the predominant market design used in finance, the continuous limit order book; and his proposed alternative, frequent batch auctions. Then, using a type of data no researcher or regulator had previously obtained, Eric uncovers new empirical facts about high-frequency trading and the magnitude of the “sniping” problem. Eric also discusses some theory and empirics about how modern stock exchanges make money (data and speed) and how they don’t (trading fees), and how this affects their incentives to innovate on market design. He finally generalizes the frequent batch auction design to accommodate the trade of arbitrary real-valued portfolios of assets, with trading as a flow over time.
The presentation is based on the following papers:
1. Budish, Cramton and Shim, QJE 2015. “The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response.”
2. Aquilina, Budish and O’Neill, QJE 2022. “Quantifying the High-Frequency Trading ‘Arms Race'”.
3. Budish, Lee and Shim, JPE Forthcoming. “A Theory of Stock Exchange Competition and Innovation: Will the Market Fix the Market?”
4. Budish, Cramton, Kyle, Lee and Malec, working paper, “Flow Trading.”
About the speaker
Eric is the Paul G. McDermott Professor of Economics and Entrepreneurship at the University of Chicago, Booth School of Business. He is also a Research Associate at the National Bureau of Economic Research, Co-Director of the Clark Center for Global Markets at Chicago Booth, Co-Director of the Chicago Booth Economics PhD Program, and the Krane Distinguished Visiting Professor at the University of Chicago Law School. He received his PhD in Business Economics from Harvard University, and his MPhil in Economics from Oxford (Nuffield College). Eric has received numerous academic awards including the Marshall Scholarship, the Sloan Fellowship, giving the joint AEA/AFA luncheon address, the Arrow award, and the AQR insight award.
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