John J. Shim
The University of Chicago Booth School of Business
5807 South Woodlawn Avenue
Chicago, IL 60637
[email protected]
http://home.uchicago.edu/~shim
Education
The University of Chicago Booth School of Business
Ph.D. in Finance, 2012 - Present (Expected 2017)
M.B.A in Analytic Finance, Finance, and Econometrics, 2012 (with High Honors)
University of Illinois at Urbana Champaign
B.S. in Statistics and Computer Science, 2006
Working Papers
“The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response” (with
Eric Budish and Peter Cramton)
Revise and Resubmit, Quarterly Journal of Economics
Winner, 2014 AQR Insight Award
Best Paper Award, 2015 Utah Winter Finance Conference
Abstract:
The high-frequency trading arms race is a symptom of flawed market design. Instead of the
continuous limit order book (CLOB) that is currently predominant, we argue that financial exchanges should use frequent batch auctions: uniform price double auctions conducted, e.g., every
tenth of a second. That is, time should be treated as discrete instead of continuous, and orders
should be processed in a batch auction instead of serially. Our argument has three parts. First, we
use millisecond-level direct-feed data from exchanges to document a series of stylized facts about
how the CLOB market design works at high-frequency time horizons: (i) correlations completely
break down; which (ii) leads to obvious mechanical arbitrage opportunities; and (iii) competition
has not affected the size or frequency of the arbitrage opportunities, it has only raised the bar
for how fast one has to be to capture them. Second, we introduce a simple theory model which is
motivated by, and helps explain, the empirical facts. The key insight is that obvious mechanical
arbitrage opportunities, like those observed in the data, are built into the CLOB market design
– even symmetrically observed public information creates arbitrage rents. These rents harm liquidity provision and induce a never-ending socially-wasteful arms race for speed. Last, we show
that frequent batch auctions directly address the problems caused by the CLOB. Discrete time
reduces the value of tiny speed advantages, and the auction transforms competition on speed into
competition on price. Consequently, frequent batch auctions eliminate the mechanical arbitrage
rents, enhance liquidity for investors, and stop the high-frequency trading arms race.
Non-Refereed Papers
“Implementation Details for Frequent Batch Auctions: Slowing Down Markets to the Blink of an Eye” (with
Eric Budish and Peter Cramton)
American Economic Review: Papers & Proceedings, May 2014, Vol 104(5): 418–424.
Research Interests
Empirical Asset Pricing, Financial Market Design, Market Efficiency, Market Microstructure
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Teaching and Employment
The University of Chicago Booth School of Business
Research Assistant, Prof. Tobias Moskowitz, 2011-2013
Teaching Assistant, Empirical Asset Pricing (MBA), Prof. Tobias Moskowitz, Spring 2013
Teaching Assistant, Investments (MBA), Prof. Tobias Moskowitz, Fall 2011
Jump Trading
Trader, 2006-2011
Honors and Awards
Booth School of Business Ph.D. Fellowship, 2012-2017
CRSP Summer Paper Award, 2013
Grants
Fama-Miller Center for Research in Finance, Grant for “Liquidity and Correlation,” June 2014
References
Professor Eric Budish
Associate Professor of Economics and William S. Fishman Faculty Scholar
The University of Chicago Booth School of Business
773.702.8453
[email protected]
Professor Tobias Moskowitz
Fama Family Professor of Finance
The University of Chicago Booth School of Business
773.834.2757
[email protected]
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