Managing speed in financial markets - an inquiry into discretizising financial markets

Specialeforsvar: Jacob Nondal Kampmann

Titel: Managing speed in financial markets - an inquiry into discretizising financial markets

Abstract: The high frequency arms race constitutes a socially inefficient competition between different actors in financial markets, as it leads to excessive investments in speed. This thesis will examine previous research into this subject, while noting a particular idea of discretizising financial markets. Then we create our own model of the high frequency arms race, which shows how doubt about the competitors knowledge creates distorted prices. We show that this doubt leads to increased spreads throughout the market harming all participants.
Finally we examine how discretizising the market would look in our model, and come to the conclusion that despite describing markets differently. The fundamental result, that discrete markets provide significant benefits to market health still hold.

Vejleder: Peter Norman Sørensen, Ø.I.
Censor:   Bjarne Astrup Jensen, CBS