Computerized and High‐Frequency Trading

26 Pages Posted: 8 Apr 2014

See all articles by Michael A. Goldstein

Michael A. Goldstein

Babson College - Finance Division

Pavitra K. Kumar

The Brattle Group

Frank C Graves

The Brattle Group

Multiple version iconThere are 2 versions of this paper

Date Written: May 2014

Abstract

The use of computers to execute trades, often with very low latency, has increased over time, resulting in a variety of computer algorithms executing electronically targeted trading strategies at high speed. We describe the evolution of increasingly fast automated trading over the past decade and some key features of its associated practices, strategies, and apparent profitability. We also survey and contrast several studies on the impacts of such high‐speed trading on the performance of securities markets. Finally, we examine some of the regulatory questions surrounding the need, if any, for safeguards over the fairness and risks of high‐speed, computerized trading.

Keywords: high‐frequency trading, HFT, algorithmic trading, market liquidity, market efficiency, price volatility, market regulation

JEL Classification: G10, G12, G14, G15, G18, G19, G20, G23, G28, G29

Suggested Citation

Goldstein, Michael A. and Kumar, Pavitra K. and Graves, Frank C, Computerized and High‐Frequency Trading (May 2014). Financial Review, Vol. 49, Issue 2, pp. 177-202, 2014. Available at SSRN: https://ssrn.com/abstract=2422130 or http://dx.doi.org/10.1111/fire.12031

Michael A. Goldstein (Contact Author)

Babson College - Finance Division ( email )

320 Tomasso Hall
Babson Park, MA 02457-0310
United States
781-239-4402 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://faculty.babson.edu/goldstein/

Pavitra K. Kumar

The Brattle Group ( email )

44 Brattle Street
3rd Floor
Cambridge, MA 02138-3736
United States

Frank C Graves

The Brattle Group ( email )

44 Brattle Street
3rd Floor
Cambridge, MA 02138-3736
United States

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