Competition among High-Frequency Traders, and Market Quality

NYU Stern Microstructure Meeting 2013

53 Pages Posted: 14 May 2013 Last revised: 21 Apr 2020

See all articles by Johannes Breckenfelder

Johannes Breckenfelder

European Central Bank (ECB) - Financial Research

Multiple version iconThere are 2 versions of this paper

Date Written: April 20, 2020

Abstract

I study empirically how competition among high-frequency traders (HFTs) affects their trading behavior and market quality. The analysis exploits a unique dataset, which allows comparing environments with and without high-frequency competition, and contains an exogenous event - a tick size reform - which I use to separate the effects of high-frequency trading competition from the effects of the rising share of high-frequency trading in the market. I find that when HFTs compete, their speculative trading increases. As a result, market liquidity deteriorates and short-term volatility rises. My findings hold for a variety of market quality and high-frequency trading behavior measures.

Keywords: high-frequency trading, competition, high-frequency trading strategies, tick size reform

JEL Classification: G12, G14, G15, G18, G23, D4, D61

Suggested Citation

Breckenfelder, Johannes, Competition among High-Frequency Traders, and Market Quality (April 20, 2020). NYU Stern Microstructure Meeting 2013, Available at SSRN: https://ssrn.com/abstract=2264858 or http://dx.doi.org/10.2139/ssrn.2264858

Johannes Breckenfelder (Contact Author)

European Central Bank (ECB) - Financial Research ( email )

Sonnemannstrasse 20
D-60314 Frankfurt am Main
Germany

HOME PAGE: http://johannesbreckenfelder.eu/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,071
Abstract Views
10,298
rank
20,914
PlumX Metrics