Abstract

http://ssrn.com/abstract=2440671
 
 

References (43)



 


 



The Effects of Algorithmic Trading on Security Market Quality


Michael J. Aitken


UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Angelo Aspris


University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Sean Foley


University of Sydney; Capital Markets CRC Limited

Frederick H. deB. Harris


Wake Forest University ; Capital Markets CRC Limited (CMCRC)

April 30, 2014


Abstract:     
We estimate in a systems framework the effect of algorithmic trading on security market quality, defined to include market manipulation at the close, information leakage prior to price-sensitive announcements, and effective spreads. Using cancellation proxies to identify AT, we show that greater AT can reduce market manipulation and information leakage as well as spreads. The data cover all securities on the London Stock Exchange and on NYSE-Euronext Paris four years before and after MiFID1. MiFID1 increased leakage and spreads with mixed effects on market manipulation. We address robustness to end-of-quarter reporting deadlines, analyze the over-identifying restrictions, and perform both Hausman and Stock-Yogo tests of the exogeneity and strength of our AT instruments.

Number of Pages in PDF File: 53

Keywords: algorithmic trading, high frequency trading, market quality, market integrity, manipulation, information leakage

JEL Classification: G28

working papers series





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Date posted: May 23, 2014  

Suggested Citation

Aitken, Michael J. and Aspris, Angelo and Foley, Sean and Harris, Frederick H. deB., The Effects of Algorithmic Trading on Security Market Quality (April 30, 2014). Available at SSRN: http://ssrn.com/abstract=2440671 or http://dx.doi.org/10.2139/ssrn.2440671

Contact Information

Michael J. Aitken
UNSW Australia Business School, School of Banking and Finance ( email )
Sydney, NSW 2052
Australia
+61 2 9299 1883 (Phone)
+61 2 9299 1830 (Fax)
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Angelo Aspris
University of Sydney - Discipline of Finance ( email )
Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Sean Foley
University of Sydney ( email )
Sydney
Australia
Capital Markets CRC Limited ( email )
GPO Box 970
55 Harrington Street
Sydney, NSW 2001
Australia
Frederick (Rick) H. deB. Harris (Contact Author)
Wake Forest University ( email )
2601 Wake Forest Road
Babcock Graduate School of Management
Winston-Salem, NC 27109
United States
336-758-5112 (Phone)
Capital Markets CRC Limited (CMCRC) ( email )
Level 3, 55 Harrington Street
Sydney, 2000
Australia
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