Geographic patterns of trading profitability in Xetra

Transaction data from the electronic trading system Xetra of the German Security Exchange is used to explore the relationship between trader location and trading profitability. The non-discriminatory nature of the electronic trading system and its wide international adoption allows interesting conclusions about the information geography of international equity trading. We use spectral analysis to examine trading profitability over intraday, intraweek, and intraquarter inventory cycles. Proprietary trader accounts reveal the underperformance of foreign traders at all three trading horizons. Our analysis confirms the hypothesis of financial market segmentation due to international information barriers. (C) 2001 Elsevier Science B.V. All rights reserved.