High Frequency Trading and End-of-Day Price Dislocation
52 Pages Posted: 12 Jun 2015
Date Written: June 11, 2015
We show that the presence of high frequency trading (HFT) has significantly mitigated the frequency and severity of end-of-day price dislocation. The effect of HFT is more pronounced on days when end of day price dislocation is more likely to be the result of market manipulation. Moreover, the effect of HFT is more pronounced than the role of trading rules, surveillance, enforcement and legal conditions in curtailing the frequency and severity of end-of-day price dislocation. We show our findings are robust to different proxies of the start of HFT by trade size, cancellation of orders, and co-location.
Keywords: High frequency trading, Price dislocation, Manipulation
JEL Classification: G12, G14, G18, K22
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