Pricing computer services: queueing effects
Communications of the ACM
User delay costs and internal pricing for a service facility
Management Science
Strategically Seeking Service: How Competition Can Generate Poisson Arrivals
Manufacturing & Service Operations Management
Service Adoption and Pricing of Content Delivery Network (CDN) Services
Management Science
Inventory Dynamics and Supply Chain Coordination
Management Science
Dynamic Price Competition with Fixed Capacities
Management Science
| Hi-index | 0.01 |
In this paper, we investigate the role of execution risk in high-frequency trading through arbitrage strategies. We show that if rational agents face uncertainty about completing their arbitrage portfolios, then arbitrage is limited even in markets with perfect substitutes and convertibility. Using a simple model, we demonstrate that this risk arises from the crowding effect of competing arbitrageurs entering the same trade and inflicting negative externalities on each other. Our empirical results provide evidence that support the relevance of execution risk in high-frequency arbitrage. This paper was accepted by Wei Xiong, finance.