Academic Papers on Latency & Market Microstructure
Key research papers exploring how latency affects market outcomes.
Foundational Papers
The High-Frequency Trading Arms Race
Budish, Cramton, Shim (2015) - Quarterly Journal of Economics
Shows how speed competition creates socially wasteful arms race. Proposes frequent batch auctions as alternative.
Key finding: 1 microsecond advantage → $75,000/year profit for single symbol Mechanism: Queue priority capture
The Flash Crash: High-Frequency Trading in an Electronic Market
CFTC-SEC Report (2010)
Analysis of May 6, 2010 flash crash. Shows how latency differences amplified volatility.
Key finding: HFT withdrawal during stress → liquidity evaporation Mechanism: Adverse selection + inventory risk
Latency and Liquidity Risk
Brogaard, Hendershott, Riordan (2014)
Examines relationship between latency and liquidity provision.
Key finding: Lower latency → tighter spreads but also faster withdrawal during stress Mechanism: Inventory risk reduction
Crypto-Specific Research
Latency Arbitrage in Decentralized Exchanges
Qin, Zhou, Livshits, Gervais (2021)
First systematic study of MEV (maximal extractable value) in Ethereum DeFi.
Key finding: $540M+ extracted via latency arbitrage in 2 years Mechanism: Arbitrage capture via transaction ordering
High-Frequency Trading on Decentralized On-Chain Exchanges
Zhou, Qin, Gervais (2021)
Analyzes DEX trading patterns and latency effects.
Key finding: 13.5ms latency advantage enables profitable arbitrage Mechanism: Cross-venue arbitrage + MEV
Queue Priority & Market Design
The Race for Speed in High-Frequency Trading
Aquilina, Budish, O’Neill (2020)
UK market data showing queue priority races.
Key finding: Cancellation speed as important as submission speed Mechanism: Queue priority + adverse selection avoidance
To Add:
- Hasbrouck papers on information propagation
- Madhavan on market microstructure
- Kyle’s lambda and information asymmetry
- O’Hara on market structure evolution
- Menkveld on HFT market making
This list is maintained manually. Suggest additions via [contact method].