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The effect of fast trading on price discovery and efficiency: Evidence from a betting exchange


Bizzozero, Paolo; Flepp, Raphael; Franck, Egon (2018). The effect of fast trading on price discovery and efficiency: Evidence from a betting exchange. Journal of Economic Behavior & Organization, 156:126-143.

Abstract

We examine how the presence of fast traders impacts price discovery and efficiency in a real-world setting, i.e., courtsiding, the activity of live betting from a tennis stadium. This setting allows us to isolate the activity of fast-acting traders who have a short-term monopolistic access to important information with respect to other traders who trade based on delayed TV images. Using live-tennis betting data combined with detailed point-by-point match data, our results show that courtsider trading promotes quick price discovery and correctly incorporates new information into prices. We estimate that a simple trading strategy yields a positive trading return to fast traders after the occurrence of important informational events.

Abstract

We examine how the presence of fast traders impacts price discovery and efficiency in a real-world setting, i.e., courtsiding, the activity of live betting from a tennis stadium. This setting allows us to isolate the activity of fast-acting traders who have a short-term monopolistic access to important information with respect to other traders who trade based on delayed TV images. Using live-tennis betting data combined with detailed point-by-point match data, our results show that courtsider trading promotes quick price discovery and correctly incorporates new information into prices. We estimate that a simple trading strategy yields a positive trading return to fast traders after the occurrence of important informational events.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Business Administration
08 Research Priority Programs > Social Networks
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Economics and Econometrics
Social Sciences & Humanities > Organizational Behavior and Human Resource Management
Language:English
Date:December 2018
Deposited On:29 Mar 2019 08:02
Last Modified:29 Jul 2020 10:32
Publisher:Elsevier
ISSN:0167-2681
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jebo.2018.09.020
Other Identification Number:merlin-id:17709

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