Abstract

http://ssrn.com/abstract=2145565
 


 



High Frequency Trading and End-of-Day Price Dislocation


Douglas J. Cumming


York University - Schulich School of Business

Feng Zhan


John Carroll University - Boler School of Business

Michael J. Aitken


Macquarie Graduate School of Management

October 28, 2013


Abstract:     
We show that the presence of high frequency trading (HFT) has significantly mitigated the frequency and severity of end-of-day price dislocation, counter to recent concerns expressed in the media. The effect of HFT is more pronounced on days when end of day price dislocation is more likely to be the result of market manipulation on days of option expiry dates and end of month. Moreover, the effect of HFT is more pronounced than the role of trading rules, surveillance, enforcement and legal conditions in curtailing the frequency and severity of end-of-day price dislocation. We show our findings are robust to different proxies of the start of HFT by trade size, cancellation of orders, and co-location.

Number of Pages in PDF File: 52

Keywords: High frequency trading, End-of-day price dislocation, Manipulation, Trading rules, Surveillance, Law and finance

JEL Classification: G12, G14, G18, K22


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Date posted: September 12, 2012 ; Last revised: November 22, 2013

Suggested Citation

Cumming, Douglas J. and Zhan, Feng and Aitken, Michael J., High Frequency Trading and End-of-Day Price Dislocation (October 28, 2013). Available at SSRN: http://ssrn.com/abstract=2145565 or http://dx.doi.org/10.2139/ssrn.2145565

Contact Information

Douglas J. Cumming
York University - Schulich School of Business ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
HOME PAGE: http://booksite.elsevier.com/9780124095373/
Feng Zhan (Contact Author)
John Carroll University - Boler School of Business ( email )
University Heights, OH 44118-4581
United States
Michael J. Aitken
Macquarie Graduate School of Management ( email )
North Ryde
Sydney, New South Wales 2109
Australia
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