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High Frequency Trading and End-of-Day ManipulationDouglas CummingYork University - Schulich School of Business Feng ZhanYork University - Schulich School of Business Michael J. AitkenUniversity of New South Wales (UNSW) - School of Banking and Finance; Financial Research Network (FIRN) September 12, 2012 Abstract: We examine the impact of high frequency trading on the frequency and severity of suspected end of day price dislocation cases in 22 stock exchanges around the world over the period January 2003 – June 2011. Controlling for country, market, legal and other differences across exchanges and over time, and using a variety of robustness checks, we show that the presence of high frequency trading in some markets has significantly mitigated the frequency and severity of end-of-day manipulation, counter to recent concerns expressed in the media. 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 manipulation. We show our findings are robust to different measures of end-of-day manipulation, including but not limited to option expiry dates, among other things.
Number of Pages in PDF File: 47 Keywords: High frequency trading, End-of-day Manipulation, Trading Rules, Surveillance, Law and Finance JEL Classification: G12, G14, G18, K22 working papers seriesDate posted: September 12, 2012 ; Last revised: November 10, 2012Suggested CitationContact Information
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