Everyone understands that high liquidity is beneficial: it lowers the cost of capital thus allowing businesses to expand. But have researchers ever quantified the liquidity premium reduction provided by HFT versus the economic rents extracted by the traders? Depending on the ratio, society might actually be better off with a little less liquidity.
I think that we do overpay for this liquidity. Both in terms of economic rents extracted, and the wasted resources poured into the competition. I wonder if there might be a way to keep most of the liquidity but at a fraction of the cost
