Competition between High-Frequency Traders, and Market Quality

Johannes H. Breckenfelder

European Central Bank (ECB) - Financial Research

November 1, 2013

NYU Stern Microstructure Meeting 2013

This is the first empirical evidence on the competition between high-frequency traders (HFTs) and its influence on market quality. We exploit the first entries of international HFTs into the Swedish equity market in 2009 and conduct a difference-in-differences analysis using trade-by-trade data. To further identify the effect, we use the Federation of European Securities Exchanges (FESE) tick size harmonization as an exogenous event that caused HFTs to start trading in stocks. When HFTs compete for trades their liquidity consumption increases. As a result, liquidity deteriorates significantly and short-term volatility rises.

Number of Pages in PDF File: 61

Keywords: competition, high-frequency trading, tick size harmonization, FESE, entry, exit

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

Open PDF in Browser Download This Paper

Date posted: May 14, 2013 ; Last revised: December 4, 2013

Suggested Citation

Breckenfelder, Johannes H., Competition between High-Frequency Traders, and Market Quality (November 1, 2013). NYU Stern Microstructure Meeting 2013. Available at SSRN: https://ssrn.com/abstract=2264858 or http://dx.doi.org/10.2139/ssrn.2264858

Contact Information

Johannes H. Breckenfelder (Contact Author)
European Central Bank (ECB) - Financial Research ( email )
Sonnemannstrasse 20
D-60314 Frankfurt am Main
HOME PAGE: http://johannesbreckenfelder.eu/

Feedback to SSRN

Paper statistics
Abstract Views: 6,504
Downloads: 833
Download Rank: 21,307