Exploring the fundamental physics of financial markets
The Space Finance Institute conducts interdisciplinary research examining how fundamental physical laws shape the structure, dynamics, and fairness of modern financial markets. Our work spans theoretical physics, empirical market analysis, and practical applications in market design and regulation.
Our flagship research program examines how the finite speed of light creates fundamental, unavoidable constraints on financial market operations. This research explores the theoretical limits of market synchronization and their practical implications for trading, regulation, and market design.
Current Focus: Analysis of cross-exchange arbitrage opportunities that exist purely due to signal propagation time, and development of regulatory frameworks that acknowledge physics-based limitations.
This research stream investigates how physical latency affects the competitive dynamics of high-frequency trading (HFT) and the microstructure of modern electronic markets. We examine how millisecond and microsecond advantages translate into market power and information asymmetries.
Current Focus: Empirical analysis of how latency differentials translate into profitability in market making, and examination of whether speed advantages primarily benefit market efficiency or create rent-seeking opportunities.
We study how physical distance creates persistent arbitrage opportunities across markets and how the geography of financial infrastructure affects market efficiency and fairness. This includes analysis of how cable routes, satellite links, and microwave networks shape trading strategies.
Current Focus: Mapping the global financial network infrastructure and analyzing how different cable routes and technologies create varying latency profiles for different trading strategies.
This research develops frameworks for financial regulation that explicitly account for physical constraints. We explore how regulators should think about fairness when certain advantages are rooted in immutable physical laws rather than information or skill.
Current Focus: Developing policy recommendations for regulators on how to account for physical constraints in market access rules, co-location policies, and exchange design standards.
We investigate how future market infrastructure should be designed to explicitly account for physical constraints while maximizing efficiency and fairness. This includes analysis of distributed ledger technologies, novel matching algorithms, and alternative market structures.
Current Focus: Exploring frequent batch auctions, randomized processing, and other mechanisms that could reduce the importance of microsecond-level latency advantages.
Our most forward-looking research examines potential applications of quantum technologies in financial markets and their implications. This includes quantum communication for secure trading, quantum computing for optimization, and fundamental limits from information theory.
Current Focus: Theoretical analysis of whether quantum entanglement could provide any advantages in distributed financial systems, and examination of post-quantum cryptography requirements for financial markets.
Our interdisciplinary approach combines multiple methodologies to ensure rigorous, comprehensive analysis:
Application of special relativity, information theory, and fundamental physical laws to establish absolute limits on market operations.
Statistical analysis of market data, latency measurements, and trading patterns to validate theoretical predictions.
Development of rigorous mathematical models of market dynamics that incorporate physical constraints and latency.
Agent-based simulations and numerical analysis to explore complex market dynamics under various physical scenarios.
Examination of how real-world institutions, regulations, and market structures interact with physical constraints.
Design of controlled experiments and natural experiments to isolate the effects of latency and physical constraints.
We actively seek collaboration with researchers from diverse disciplines, including physics, computer science, economics, finance, and engineering. We also work with industry practitioners and regulators to ensure our research addresses real-world challenges.
If you're interested in collaborating on research at the intersection of physics and finance, please visit our contact page to learn more.