The financial market operates as an ecosystem, involving diverse yet interconnected marketplaces and participants. Market design, intricately interacting with technology, regulation, and competition, shapes how participants adapt their trading behavior and therefore influences market performance.

This thesis investigates how market microstructure impacts
the behavior of fast and slow traders, the incentive for liquidity provision and liquidity demand, and the competition between exchanges for gaining order flow. It is a compilation thesis consisting of three articles: "Latency Arbitrage and Market Liquidity," "Market Fragmentation, Liquidity, and Efficiency," and "Tick Size, Lot Size, and Liquidity in Futures Trading."

Chengcheng Qu with the thesis "Competition, Division, and Unity - The Impact of Market Structures on Trading Quality".

Three questions for Chengcheng Qu

How did you get interested in this topic in the first place?

There is a book that got a lot of attention when it was published, Flash Boys by Michael Lewis. Reading that, I got interested in how innovation in technology in financial markets was running at full speed, but that it sometimes had unintended side effects. The book is aimed at a general audience, with colorful stories about those side effects. I wanted to go to the data and investigate the pros and cons of innovation in trading speed, for example.

Could you provide a brief summary of what your articles investigate and are about?

Stock trading nowadays is not all taking place at one exchange. It is diverse trading environment, where numerous exchanges and other trading venues compete to trade the same stocks. This is often referred to as market fragmentation. When the same stock trades in many different places, prices should in theory be the same everywhere, but in reality that is not always true.

For example, whenever the value of a stock changes, prices at all exchanges should reflect that, but the price changes will never be exactly simultaneous. One exchange will always move its price before another. This creates price differences that high-frequency traders seek to exploit.

Even if such opportunities are extremely shortlived, they can bring considerable profits. This is called toxic arbitrage. In my dissertation, I find that market fragmentation is good for liquidity in general, but that toxic arbitrage reduces those benefits.

What are your plans now when you have earned your doctoral degree?

I will start a new position as a lecturer at Ritsumeikan Asia Pacific University in Japan, starting in April.

Chengcheng Qu and opponent Professor Roman Kozhan, Warwick Business School, The University of Warwick.

From the left: supervisors Professor Björn Hagströmer, Assistant Professor Michal Dzielinski, PhD Chengcheng Qu and supervisor Professor Lars Nordén.

Read the thesis Competition, Division, and Unity - The Impact of Market Structures on Trading Quality.