High Frequency Trading and End-of-Day Price Dislocation

52 Pages Posted: 12 Sep 2012 Last revised: 22 Nov 2013

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

Feng Zhan

Western University

Michael J. Aitken

Macquarie Graduate School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: 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.

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

JEL Classification: G12, G14, G18, K22

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: https://ssrn.com/abstract=2145565 or http://dx.doi.org/10.2139/ssrn.2145565

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/douglas-cumming

Feng Zhan (Contact Author)

Western University ( email )

1151 Richmond St
London, N6A 3K7
Canada

Michael J. Aitken

Macquarie Graduate School of Management ( email )

North Ryde
Sydney, New South Wales 2109
Australia

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