Is High-Frequency Trading Inducing Changes in Market Microstructure and Dynamics?

21 Pages Posted: 30 Jun 2010 Last revised: 13 Oct 2010

Date Written: June 28, 2010

Abstract

Using high-frequency time series of stock prices and share volumes sizes from January 2002-May 2009, this paper investigates whether the effects of the onset of high-frequency trading, most prominent since 2005, are apparent in the dynamics of the dollar traded volume. Indeed it is found in almost all of 14 heavily traded stocks, that there has been an increase in the Hurst exponent of dollar traded volume from Gaussian noise in the earlier years to more self-similar dynamics in later years. This shift is linked both temporally to the Reg NMS reforms allowing high-frequency trading to flourish as well as to the declining average size of trades with smaller trades showing markedly higher degrees of self-similarity.

Keywords: financial markets, algorithmic trading, self-similarity, wavelets, high frequency trading, Hurst exponent

JEL Classification: G19

Suggested Citation

Smith, Reginald, Is High-Frequency Trading Inducing Changes in Market Microstructure and Dynamics? (June 28, 2010). Available at SSRN: https://ssrn.com/abstract=1632077 or http://dx.doi.org/10.2139/ssrn.1632077

Reginald Smith (Contact Author)

Supreme Vinegar LLC ( email )

3430 Progress Dr.
Suite D
Bensalem, PA 19020

Register to save articles to
your library

Register

Paper statistics

Downloads
1,439
rank
11,998
Abstract Views
5,860
PlumX Metrics