High-Frequency Trading around Large Institutional Orders
48 Pages
Posted: 18 Jun 2015
Last revised: 24 Feb 2016
Pontifical Catholic University of Chile; Tilburg Law and Economics Center (TILEC)
VU University Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)
Date Written: January 29, 2016
Abstract
Liquidity suppliers lean against the wind. We analyze whether high-frequency traders (HFTs) lean against large institutional orders that execute through a series of child orders. The alternative is that HFTs go “with the wind” and trade in the same direction. We find that HFTs initially lean against orders but eventually turn around and go with them for long-lasting orders. This pattern explains why institutional trading cost is 46% lower when HFTs lean against the order (by one standard deviation) but 169% higher when they go with it. Further analysis supports recent theory, suggesting HFTs “back-run” on informed orders.
Keywords: HFT, Institutional investors, Implementation Shortfall
JEL Classification: G10, G14, G15
Suggested Citation:
Suggested Citation
van Kervel, Vincent and Menkveld, Albert J., High-Frequency Trading around Large Institutional Orders (January 29, 2016). WFA Paper, 2016. Available at SSRN: https://ssrn.com/abstract=2619686 or http://dx.doi.org/10.2139/ssrn.2619686
