High-Frequency Trading around Large Institutional Orders

79 Pages Posted: 18 Jun 2015 Last revised: 24 Mar 2018

See all articles by Vincent van Kervel

Vincent van Kervel

Pontifical Catholic University of Chile

Albert J. Menkveld

VU Amsterdam; Tinbergen Institute

Date Written: February 21, 2018


Liquidity suppliers lean against the wind. We analyze whether high-frequency traders (HFTs) lean against large institutional orders that execute through a series of child orders. The alternative is HFTs trading "with the wind," that is, in the same direction. We find that HFTs initially lean against these orders but eventually change direction and take position in the same direction for the most informed institutional orders. Our empirical findings are consistent with investors trading strategically on their information. When deciding trade intensity, they seem to trade off higher speculative profit against higher risk of detection by HFTs and being preyed on.

Keywords: High-frequency traders, institutional investors, trading patterns, transaction cost

JEL Classification: G10, G14, G15

Suggested Citation

van Kervel, Vincent and Menkveld, Albert J., High-Frequency Trading around Large Institutional Orders (February 21, 2018). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2619686 or http://dx.doi.org/10.2139/ssrn.2619686

Vincent Van Kervel (Contact Author)

Pontifical Catholic University of Chile ( email )

Av Libertador General Bernardo O'Higgins 340
Santiago, Región Metropolitana 8331150

Albert J. Menkveld

VU Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
+31 20 5986130 (Phone)
+31 20 5986020 (Fax)

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS

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