High Frequency Trading and End-of-Day Price Dislocation

52 Pages Posted: 12 Jun 2015

See all articles by Michael J. Aitken

Michael J. Aitken

Macquarie Graduate School of Management

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

Feng Zhan

Western University

Multiple version iconThere are 2 versions of this paper

Date Written: June 11, 2015

Abstract

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

Suggested Citation

Aitken, Michael J. and Cumming, Douglas J. and Zhan, Feng, High Frequency Trading and End-of-Day Price Dislocation (June 11, 2015). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2617288

Michael J. Aitken

Macquarie Graduate School of Management ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/douglas-cumming

Feng Zhan (Contact Author)

Western University ( email )

1151 Richmond St
London, N6A 3K7
Canada

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

Paper statistics

Downloads
241
Abstract Views
2,056
Rank
17,794
PlumX Metrics