Abstract
We examine the execution quality of electronic stock traders who are geographically dispersed throughout the U.S. Traders who are located further away from market central computers in the New York City area experience slower order execution and higher trading costs. The negative relation between execution quality and trader distance is robust to various factors that could (also) potentially affect order execution quality. In electronic market settings, data transfer limitations and transmission slowdowns result in geographically dispersed electronic traders having different access to trading speed. For traders who act off of short-term information, longer wait times reduce (eliminate) their advantage and result in higher trading costs.
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