Interactions Among High-Frequency Traders

49 Pages Posted: 27 Feb 2015

See all articles by Evangelos Benos

Evangelos Benos

Bank of England

James Brugler

University of Melbourne - Department of Finance

Erik Hjalmarsson

University of Gothenburg - Centre for Finance

Filip Zikes

Bank of England

Date Written: February 20, 2015

Abstract

Using unique transactions data for individual high-frequency trading (HFT) firms in the UK equity market, we examine if the trading activity of individual HFT firms is contemporaneously and dynamically correlated with each other, and what impact this has on price efficiency. We find that HFT order flow exhibits significantly higher commonality than the order flow of a control group of investment banks, both within and across stocks. However, intraday HFT order flow commonality is associated with a permanent price impact, suggesting that commonality in HFT activity is information-based and so does not generally contribute to undue price pressure and price dislocations.

Keywords: High-frequency trading, correlated trading strategies, price discovery

JEL Classification: G10, G12, G14

Suggested Citation

Benos, Evangelos and Brugler, James and Hjalmarsson, Erik and Zikes, Filip, Interactions Among High-Frequency Traders (February 20, 2015). Bank of England Working Paper No. 523, Available at SSRN: https://ssrn.com/abstract=2570140 or http://dx.doi.org/10.2139/ssrn.2570140

Evangelos Benos (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

James Brugler

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010 3010
Australia

Erik Hjalmarsson

University of Gothenburg - Centre for Finance ( email )

Box 640
Gothenburg, 403 50
Sweden

Filip Zikes

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
164
Abstract Views
1,008
rank
216,394
PlumX Metrics