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
Date Written: January 7, 2013
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
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