Mispricing and Exchange Market Systems: The Effect of Infrastructure Upgrades

We study the effects of an infrastructure change at the Deutsche Boerse in Germany. On April 23rd 2007, Deutsche Boerse released an upgraded version of their electronic trading system Xetra. We examine the impact that this upgrade had on the efficiency of prices, measured as the level of mispricing, in the underlying liquid cash market and derivative futures market. Our analysis shows that the level of mispricings is economically and statistically (significant) reduced by the system upgrade.

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