Download This PaperCompetition among High-Frequency Traders, and Market Quality
Journal of Economic Dynamics and Control, 2024, Vol. 166, 104922.
53 Pages Posted: 14 May 2013 Last revised: 17 Oct 2024
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Competition among High-Frequency Traders, and Market Quality
Competition Among High-Frequency Traders, and Market Quality
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: Suggested Citation
, 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/