The Impact of IT-Based Trading on Securities Markets

WI2013 - 11th International Conference on Wirtschaftsinformatik

15 Pages Posted: 8 Jan 2013 Last revised: 8 Mar 2013

See all articles by Martin Haferkorn

Martin Haferkorn

Goethe University Frankfurt Faculty of Economics and Business Administration

Kai Zimmermann

Goethe University Frankfurt Faculty of Economics and Business Administration

Michael Siering

Goethe University Frankfurt Faculty of Economics and Business Administration

Date Written: January 7, 2013

Abstract

The emergence of IT-based trading activities like algorithmic trading or high-frequency trading alters the traditional trading environment within financial markets. Thus, the question arises whether this technological arms race positively affects market quality or represents a risk related to market integrity. Within this study, we evaluate the order-to-trade-ratio for measuring overall IT-based trading activity. Furthermore, in a longitudinal study, we assess the impact of the order-to-trade-ratio on market quality. We find strong indications that price uncertainty has decreased with an increased order-to-trade-ratio and therefore has a positive impact on financial markets. However, the mere upgrade of the trading systems does not relate into increased market liquidity.

Keywords: Algorithmic Trading, High-Frequency Trading, Securities Trading, Order-To-Trade-Ratio, Value of IT

JEL Classification: G10

Suggested Citation

Haferkorn, Martin and Zimmermann, Kai and Siering, Michael, The Impact of IT-Based Trading on Securities Markets (January 7, 2013). WI2013 - 11th International Conference on Wirtschaftsinformatik. Available at SSRN: https://ssrn.com/abstract=2197190

Martin Haferkorn (Contact Author)

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, 60323
Germany

Kai Zimmermann

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

Michael Siering

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

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