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; European Securities and Markets Authority (ESMA)

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 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

European Securities and Markets Authority (ESMA) ( email )

201-203 Rue de Bercy
​Paris, 75012
France

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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