Abstract. High-frequency trading has become a dominant force in the U.S. capital market, accounting for over 70% of dollar trading volume. This study examines the implication of high-frequency trading for stock price volatility and price discovery.
This paper characterizes the trading strategy of a large high-frequency trader (HFT). The HFT incurs a loss on its inventory but earns a profit on the bid-ask spread. Sharpe ratio calculations show that performance is very sensitive to cost of capital assumptions.
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Downloadable! This discussion paper led to an article in the Journal of Financial Markets (2013). Volume 16, pages 571-603. This paper links the recent fragmentation in equity trading to high frequency traders (HFTs). It shows how the success of a new market, Chi-X, critically depended on the participation of a large HFT who acts as a modern market-maker.
We study the consequences of high-frequency trading (HFT) — and potential policy responses — via the tradeoff between liquidity and information production. Faster speeds facilitate HFT with consequences for this tradeoff: information production diminishes because informed traders have less time to trade before HFTs react, but liquidity (measured by the bid-ask spread) improves.
Algorithmic and High-Frequency Trading is the first book that combines sophisticated mathematical modelling, empirical facts and financial economics, taking the reader from basic ideas to cutting-edge research and practice.
High Frequency Trading: Overview of Recent Developments Congressional Research Service Although no legislation has been introduced in the 114th Congress directly impacting the regulation or oversight of HFT, several bills have been introduced imposing a tax on a broad.
Using bond futures data, we test whether high-frequency trading (HFT) is engaging in back running, a trading strategy that can create costs for financial institutions. We reject the hypothesis of back running and find instead that HFT mildly improves trading costs for institutions.