Abstract

http://ssrn.com/abstract=2145565
 
 

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High Frequency Trading and End-of-Day Price Dislocation


Douglas J. Cumming


York University - Schulich School of Business

Feng Zhan


York University - Schulich School of Business

Michael J. Aitken


University of New South Wales (UNSW) - School of Banking and Finance; Centre for International Finance and Regulation (CIFR); Financial Research Network (FIRN)

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

working papers series


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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://www.venturecapitalprivateequitycontracting.com/
Feng Zhan (Contact Author)
York University - Schulich School of Business ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
Michael J. Aitken
University of New South Wales (UNSW) - School of Banking and Finance ( email )
Sydney, NSW 2052
Australia
+61 2 9299 1883 (Phone)
+61 2 9299 1830 (Fax)
Centre for International Finance and Regulation (CIFR) ( email )
Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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