How Aggressive are High-Frequency Traders?

52 Pages Posted: 22 Sep 2013

See all articles by Björn Hagströmer

Björn Hagströmer

Stockholm University - Stockholm Business School

Lars L. Norden

Stockholm University - Stockholm Business School

Dong Zhang

Stockholm University - Stockholm Business School

Multiple version iconThere are 2 versions of this paper

Date Written: September 16, 2013

Abstract

We study order aggressiveness of market-making high-frequency traders (HFTs), opportunistic HFTs, and non-HFTs. We find that market-making HFTs follow their own group's previous order submissions more than they follow other traders’ orders. Opportunistic HFTs and non-HFTs tend to split market orders into small portions submitted in sequence. HFTs submit more (less) aggressive orders when the same-side (opposite-side) depth is large, and supply liquidity when the bid-ask spread is wide. Thus, HFTs adhere strongly to the trade-off between waiting cost and the cost of immediate execution. Non-HFTs care less about this trade-off, but react somewhat stronger than HFTs to volatility.

The appendices for this paper are available at the following URL: http://ssrn.com/abstract=2365988

Keywords: high-frequency trading, HFT, aggressiveness, liquidity, volatility, diagonal effect

JEL Classification: G14, G18

Suggested Citation

Hagströmer, Björn and Nordén, Lars L. and Zhang, Dong, How Aggressive are High-Frequency Traders? (September 16, 2013). Available at SSRN: https://ssrn.com/abstract=2326446 or http://dx.doi.org/10.2139/ssrn.2326446

Björn Hagströmer

Stockholm University - Stockholm Business School ( email )

Stockholm
Sweden

Lars L. Nordén (Contact Author)

Stockholm University - Stockholm Business School ( email )

Sweden

Dong Zhang

Stockholm University - Stockholm Business School ( email )

Sweden

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