The High-Frequency Trading Arms Race¶
Budish, E., Cramton, P., & Shim, J. (2015). The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response. Quarterly Journal of Economics, 130(4), 1547-1621.
Cited by¶
4 citations across 4 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Arbitrage (Finance)
- The mechanics have accelerated from sailing ships (months-long execution) to algorithmic systems (millisecond execution), but the economic principle remains unchanged—a transition that Budish, Cramton, and Shim (2015) document as a continuous-time arms race in which co-located high-frequency traders compete for vanishing arbitrage windows in equity index futures and ETFs.
This sourceModels the millisecond-scale HFT race as a continuous-time arms race that imposes a hidden tax on liquidity; co-located HFTs compete for vanishing arbitrage windows in equity index futures and ETFs (e.g., ES vs. SPY); proposes frequent batch auctions as an alternative microstructure.
- The mechanics have accelerated from sailing ships (months-long execution) to algorithmic systems (millisecond execution), but the economic principle remains unchanged—a transition that Budish, Cramton, and Shim (2015) document as a continuous-time arms race in which co-located high-frequency traders compete for vanishing arbitrage windows in equity index futures and ETFs.
- Efficient Market Hypothesis (EMH)
- … that high-frequency trading does not unambiguously improve efficiency: the continuous-limit-order-book design generates a sniping arms race that imposes deadweight latency-investment costs and motivates frequent batch auctions as a microstructural redesign that better aligns with EMH's information-aggregation goals.
This sourceShows the continuous-limit-order-book design generates a sniping arms race (a hidden tax on liquidity) and proposes frequent batch auctions — supports marker 223 (HFT does not unambiguously improve efficiency).
- … that high-frequency trading does not unambiguously improve efficiency: the continuous-limit-order-book design generates a sniping arms race that imposes deadweight latency-investment costs and motivates frequent batch auctions as a microstructural redesign that better aligns with EMH's information-aggregation goals.
- Liquidity
- Modern market design makes this formalism explicit: Budish, Cramton, and Shim (2015) modeled the millisecond-scale "race" of high-frequency traders as a continuous-time arms race that imposes a hidden tax on liquidity, and proposed frequent batch auctions as an alternative microstructure that recovers welfare by replacing continuous-time matching with discrete-time clearing.
This sourceModels the millisecond-scale HFT race as a continuous-time arms race that imposes a hidden tax on liquidity; proposes frequent batch auctions as an alternative microstructure that replaces continuous matching with discrete-time clearing to recover welfare.
- Modern market design makes this formalism explicit: Budish, Cramton, and Shim (2015) modeled the millisecond-scale "race" of high-frequency traders as a continuous-time arms race that imposes a hidden tax on liquidity, and proposed frequent batch auctions as an alternative microstructure that recovers welfare by replacing continuous-time matching with discrete-time clearing.
- Tempo Mismatch
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