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What (if anything) is wrong with high-frequency trading?


Mildenberger, Carl David (2022). What (if anything) is wrong with high-frequency trading? Journal of Business Ethics:online.

Abstract

This essay examines three potential arguments against high-frequency trading and offers a qualified critique of the practice. In concrete terms, it examines a variant of high-frequency trading that is all about speed—low-latency trading—in light of moral issues surrounding arbitrage, information asymmetries, and systemic risk. The essay focuses on low-latency trading and the role of speed because it also aims to show that the commonly made assumption that speed in financial markets is morally neutral is wrong. For instance, speed is a necessary condition for low-latency trading’s potential to cause harm in “flash crashes.” On the other hand, it also plays a crucial role in a Lockean defense against low-latency trading being wasteful developed in this essay. Finally, this essay discusses the implications of these findings for related high-frequency trading techniques like futures arbitrage or latency arbitrage—as well as for an argument as to why quote stuffing is wrong. Overall, the qualifications offered in this essay act as a counterbalance to overblown claims about trading at high speeds being wrong.

Abstract

This essay examines three potential arguments against high-frequency trading and offers a qualified critique of the practice. In concrete terms, it examines a variant of high-frequency trading that is all about speed—low-latency trading—in light of moral issues surrounding arbitrage, information asymmetries, and systemic risk. The essay focuses on low-latency trading and the role of speed because it also aims to show that the commonly made assumption that speed in financial markets is morally neutral is wrong. For instance, speed is a necessary condition for low-latency trading’s potential to cause harm in “flash crashes.” On the other hand, it also plays a crucial role in a Lockean defense against low-latency trading being wasteful developed in this essay. Finally, this essay discusses the implications of these findings for related high-frequency trading techniques like futures arbitrage or latency arbitrage—as well as for an argument as to why quote stuffing is wrong. Overall, the qualifications offered in this essay act as a counterbalance to overblown claims about trading at high speeds being wrong.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:01 Faculty of Theology and the Study of Religion > Center for Ethics
06 Faculty of Arts > Institute of Philosophy
Dewey Decimal Classification:900 History
Scopus Subject Areas:Social Sciences & Humanities > Business and International Management
Social Sciences & Humanities > General Business, Management and Accounting
Social Sciences & Humanities > Arts and Humanities (miscellaneous)
Social Sciences & Humanities > Economics and Econometrics
Social Sciences & Humanities > Law
Uncontrolled Keywords:Law, Economics and Econometrics, Arts and Humanities (miscellaneous), General Business, Management and Accounting, Business and International Management
Language:English
Date:26 May 2022
Deposited On:14 Jan 2023 17:58
Last Modified:28 Apr 2024 01:44
Publisher:Springer
ISSN:0167-4544
OA Status:Hybrid
Publisher DOI:https://doi.org/10.1007/s10551-022-05145-7
Project Information:
  • : FunderUniversity of Zurich
  • : Grant ID
  • : Project Title
  • Content: Accepted Version
  • Language: English