How Aggressive are High‐Frequency Traders?

25 Pages Posted: 8 Apr 2014

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: May 2014

Abstract

We study order aggressiveness of market‐making high‐frequency traders (MM‐HFTs), opportunistic HFTs (Opp‐HFTs), and non‐HFTs. We find that MM‐HFTs follow their own group's previous order submissions more than they follow other traders’ orders. Opp‐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 tradeoff between waiting cost and the cost of immediate execution. Non‐HFTs care less about this tradeoff, but react somewhat stronger than HFTs to volatility.

Keywords: high‐frequency trading, aggressiveness, order submission, liquidity, volatility

JEL Classification: G14, G18

Suggested Citation

Hagströmer, Björn and Nordén, Lars L. and Zhang, Dong, How Aggressive are High‐Frequency Traders? (May 2014). Financial Review, Vol. 49, Issue 2, pp. 395-419, 2014. Available at SSRN: https://ssrn.com/abstract=2422140 or http://dx.doi.org/10.1111/fire.12041

Björn Hagströmer (Contact Author)

Stockholm University - Stockholm Business School ( email )

Stockholm
Sweden

Lars L. Nordén

Stockholm University - Stockholm Business School ( email )

Sweden

Dong Zhang

Stockholm University - Stockholm Business School ( email )

Sweden

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