Fairness in Financial Markets: The Case of High Frequency Trading

Game Theoretical Aspects of Colocation in High-Speed Financial Markets

“…In a second step, it derives a theoretical perspective based on the empirical insights on technical arbitrage in context of HFT that allows for discussing the strategic choices money managers are left with when deciding on spatial location and latency reduction. Taking the current regulatory and institutional environment as a given, the chapter does not discuss ethical or societal considerations of latency reduction (e.g., Angel andMcCabe, 2013, Pagnotta andPhilippon, 2011).…”

High-Frequency Trading

“…As discussed in Angel and McCabe (2013), in order to address the issue of fairness in relation to HFT, there are three natural questions one needs to ask: (1) what constitutes HFT,…”

“…However, borrowing Angel and McCabe (2013)'s description of the seven part criteria proposed by Shefrin and Statman (1993), we will identify fairness in the financial markets in terms of the following seven dimensions. a.…”

“…Invoking the Shefrin and Statman (1993) set of fairness criteria noted above, Angel and McCabe (2013) clearly exonerates HFT with respect to "freedom from coercion" (Criteria 1) and with regards to "freedom from misrepresentation" (Criteria 2) and surprisingly enough with respect to inequality of bargaining power of the colocated HFT firms. However, they are relatively more circumspect regarding the equal information and related equal processing power criteria.…”

When Finance Meets Physics: The Impact of the Speed of Light on Financial Markets and their Regulation

“…Angel and McCabe (2012) argue that it is no more unfair than the fact the some investors are endowed with more resources to spend on fundamental research, or better brains for finding good investments. If the practice of co-location were banned, the co-locators would merely move to another location as close as possible to the exchange data center.…”