High Frequency Trading and Market Quality

Brogaard, Jonathan

doi:10.2139/ssrn.1970072

Cited by 235 publications

(227 citation statements)

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“…2 Interestingly, the widespread concerns about the negative impact of HFT on institutional trading costs are in sharp contrast to the findings of a few recent academic studies. Academic evidence so far seems to suggest that, predominantly, HFT is associated with improved market liquidity, reduced volatility, and increased price efficiency/discovery; see, for example, Chaboud et al (2009), Brogaard (2010), Hendershott et al (2011), Boehmer et al (2012), Menkveld (2012), Hasbrouck and Saar (2013), Brogaard et al (2013), and Malinova, Park and Riordan (2013). The evidence produced by these studies is consistent with the view that HFT firms are the modern day version of market makers with enhanced technology.…”

Section: Introductionsupporting

confidence: 61%

“…Their limit orders are adversely selected but are compensated by liquidity rebates. With the same dataset, Brogaard (2010) finds no evidence that HF traders withdrawing from markets in bad times or that they front run large non-HFT trades. Using message counts as a proxy for algorithmic trading (AT), Hendershott et al (2011) find that AT improves liquidity and brings about more efficient price discovery.…”

Section: Related Literaturementioning

confidence: 94%

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A Blessing or a Curse? The Impact of High Frequency Trading on Institutional Investors

Tong

2013

SSRN Journal

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Combining data on high frequency trading (HFT) activities of a randomly selected sample of 120 stocks and data on institutional trades, I find that HFT increases the trading costs of traditional institutional investors. One standard deviation increase in the intensity of HFT activities increases institutional execution shortfall costs by a third. Further analysis suggests that HFT represents as an ephemeral and extra-expensive source of liquidity provision when demand and supply among institutional investors are imbalanced, and that the impact on institutional trading costs is most pronounced when high frequency (HF) traders engage in directional strategies (e.g., front-running).I perform various analyses to rule out an alternative explanation that HF traders are attracted to stocks that have high trading costs. First, HFT is most active on liquid stocks. Second, the results are robust to the controls for stable stock liquidity characteristics and events that might jointly affect HFT and trading costs. Third, an analysis of the HFT behavior around the temporary short selling ban in September 2008 highlights the opportunistic nature of liquidity provision by HF traders. Finally, Granger causality tests show that intensive HFT activity significantly contributes to institutional trading costs, but not vice versa.

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Section: Introductionsupporting

confidence: 61%

Section: Related Literaturementioning

confidence: 94%

A Blessing or a Curse? The Impact of High Frequency Trading on Institutional Investors

Tong

2013

SSRN Journal

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“…This may cause a reduction of their quoted sizes. Brogaard (2010) finds that HF traders do not contribute significant depth compared to non-HFT agents.…”

Section: Computer-based Trading and Market Activitymentioning

confidence: 89%

The Foreign Exchange Market

Gandolfo

2016

Springer Texts in Business and Economics

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“…How important technology has become for the securities and investment industry can be observed from the investments in information technology, which in the US and Canada, for example, is estimated to can be attributed to high-frequency proprietary trading (Brogaard, 2010). 5 The increase in high-frequency trading has many side effects, such as the phenomenon of flash crashes as occurred on May 6 th 2010.…”

Section: Introductionmentioning

confidence: 99%

“…4 http://batstrading.com and https://www.directedge.com 5 We follow Hendershott and Riordan (2011) by defining algorithmic trading as the use of computer algorithms to automatically make trading decisions, submit orders, and manage those orders after submissions. As in Brogaard (2010) and Gomber, Arndt, Lutat and Uhle (2011) high-frequency trading is considered to be a subset of algorithmic trading due to, for example, its proprietary nature, the large number of order submissions and cancellations and the focus on highly liquid instruments.…”

Section: Introductionmentioning

confidence: 99%

High-Frequency Technical Trading: The Importance of Speed

Scholtus

Dijk

2012

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in February 2012Abstract This paper investigates the importance of speed for technical trading rule performance for three highly liquid ETFs listed on NASDAQ over the period January 6, 2009 up to September 30, 2009. In addition we examine the characteristics of market activity over the day and within subperiods corresponding to hours, minutes, and seconds. Speed has a clear impact on the return of technical trading rules. For strategies that yield a positive return when they experience no delay, a delay of 200 milliseconds is enough to lower performance significantly. On low volatility days this is already the case for delays larger than 50 milliseconds. In addition, the importance of speed for trading rule performance increases over time. Market activity follows a U-shape over the day with a spike at 10:00AM due to macroeconomic announcements and is characterized by periodic activity within the day, hour, minute, and second.

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High Frequency Trading and Market Quality

Cited by 235 publications

References 0 publications

A Blessing or a Curse? The Impact of High Frequency Trading on Institutional Investors

A Blessing or a Curse? The Impact of High Frequency Trading on Institutional Investors

The Foreign Exchange Market

High-Frequency Technical Trading: The Importance of Speed

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