Abstract

http://ssrn.com/abstract=2022034
 
 

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International Evidence on Algorithmic Trading


Ekkehart Boehmer


EDHEC Business School

Kingsley Y. L. Fong


University of New South Wales - School of Banking and Finance; Financial Research Network (FIRN)

Juan (Julie) Wu


University of Georgia

March 27, 2014

AFA 2013 San Diego Meetings Paper

Abstract:     
We study the effect of algorithmic trading (AT) intensity on equity market liquidity, short-term volatility, and informational efficiency between 2001 and 2011 in 42 equity markets around the world. On average, AT improves liquidity and informational efficiency, but it increases volatility. We cannot attribute the AT-related increase in volatility to more “good” volatility that would arise from faster price discovery. Moreover, this result does not reflect algo traders’ inclination to enter the market when volatility is high. On the contrary, these volatility-seeking traders are associated with declines in market quality. Our results are surprisingly consistent across markets and thus across a wide range of AT practices. But results vary in the cross-section of stocks. In contrast to the average effect, greater AT intensity reduces liquidity and worsens the volatility increase in the smallest tercile of stocks. Finally, AT becomes less beneficial when market making is difficult.

Number of Pages in PDF File: 50

Keywords: Algorithmic trading, high frequency trading, market structure

JEL Classification: G19, G15

working papers series


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Date posted: March 15, 2012 ; Last revised: April 10, 2014

Suggested Citation

Boehmer, Ekkehart and Fong, Kingsley Y. L. and Wu, Juan (Julie), International Evidence on Algorithmic Trading (March 27, 2014). AFA 2013 San Diego Meetings Paper. Available at SSRN: http://ssrn.com/abstract=2022034 or http://dx.doi.org/10.2139/ssrn.2022034

Contact Information

Ekkehart Boehmer (Contact Author)
EDHEC Business School ( email )
One George Street, #07-02
Singapore, 049145
Singapore
HOME PAGE: http://www.ekki.org
Kingsley Y. L. Fong
University of New South Wales - School of Banking and Finance ( email )
Sydney, NSW 2052
Australia
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Juan (Julie) Wu
University of Georgia ( email )
Dept. of Finance, Terry College of Business
University of Georgia
Athens, GA 30602-6254
United States
HOME PAGE: http://juliewu.myweb.uga.edu/
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