High-Frequency Trading and Market Stability

Bongaerts, Dion; Achter, Mark Van

doi:10.2139/ssrn.2698702

Cited by 27 publications

(12 citation statements)

References 51 publications

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“…Finally, other studies use models of HFT to evaluate alternative trading mechanisms or other interventions. Wah and Wellman (2013), Budish, Cramton, and Shim (2015), Bongaerts and Van Achter (2016), Jovanovic and Menkveld (2016), Rojček and Ziegler (2016), Aït-Sahalia and Saglam (2017a), Du and Zhu (2017), Brolley and Cimon (2018), Aldrich and Friedman (2019), and Bernales (2019) variously consider Tobin taxes, cancellation fees, minimum resting times, pro rata matching, batch auctions, and order processing delays.…”

Section: Related Literaturementioning

confidence: 99%

High‐Frequency Trading and Market Performance

Baldauf¹,

Mollner

2020

The Journal of Finance

130

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We study the consequences of, and potential policy responses to, high-frequency trading (HFT) via the tradeoff between liquidity and information production. Faster speeds facilitate HFT, with consequences for this tradeoff: Information production decreases because informed traders have less time to trade before HFTs react, but liquidity (measured by the bid-ask spread) improves because informational asymmetries decline. HFT also pushes outcomes inside the frontier of this tradeoff. However, outcomes can be restored to the frontier by replacing the limit order book with one of two alternative mechanisms: delaying all orders except cancellations or implementing frequent batch auctions. * Markus Baldauf is with the Sauder School of Business, University of British Columbia. Joshua Mollner is with the Kellogg School of Management, Northwestern University. We are indebted to our advisors

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Section: Related Literaturementioning

confidence: 99%

High‐Frequency Trading and Market Performance

Baldauf¹,

Mollner

2020

The Journal of Finance

130

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“…For example,Bongaerts and van Achter, 2015;Jovanovic and Menkveld, 2015;Aït-Sahalia and Saglam, 2014;and Menkveld and Zoican, 2015. …”

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confidence: 99%

Risk and Return in High-Frequency Trading

Baron¹,

Brogaard²,

Hagströmer³

et al. 2018

J. Financ. Quant. Anal.

198

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We study performance and competition among firms engaging in high-frequency trading (HFT). We construct measures of latency and find that differences in relative latency account for large differences in HFT firms’ trading performance. HFT firms that improve their latency rank due to colocation upgrades see improved trading performance. The stronger performance associated with speed comes through both the short-lived information channel and the risk management channel, and speed is useful for various strategies, including market making and cross-market arbitrage. We find empirical support for many predictions regarding relative latency competition.

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“…The combination of fast speed in trading and in information access by HFTs can be harmful and/or beneficial for the market. Bongaerts and Van Achter () focus on high‐frequency market makers’ price competition in a limit order market and find that increased speed of contract rate leads to faster undercutting and therefore benefits liquidity. Nonetheless, if furthermore high‐frequency market makers have an informational advantage, then liquidity is reduced because of increased adverse selection risk for other trader market makers (Jovanovic and Menkveld, ).…”

Section: Introductionmentioning

confidence: 99%

Tiered Information Disclosure: An Empirical Analysis of the Advance Peek into the Michigan Index of Consumer Sentiment

Liu

Suardi

et al. 2019

The Financial Review

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This paper studies market microstructure implications of informed high‐frequency traders (HFTs) from two seconds of advance peek into the Michigan Index of Consumer Sentiment (ICS), provided by Thomson Reuters to its elite customers. Using individual stocks in the NASDAQ data set, we show how HFTs trade around ICS events. We find that liquidity demanders during two seconds of advance peek earn substantive profits, which are consistent with the notion that HFTs’ informational advantages may increase adverse selection costs for other market participants. This evidence elucidates the debate on regulatory oversight and its role in circumventing the potentially adverse effects from an advance peek into ICS.

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High-Frequency Trading and Market Stability

Cited by 27 publications

References 51 publications

High‐Frequency Trading and Market Performance

High‐Frequency Trading and Market Performance

Risk and Return in High-Frequency Trading

Tiered Information Disclosure: An Empirical Analysis of the Advance Peek into the Michigan Index of Consumer Sentiment

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