Is High Frequency Trading Beneficial to Market Quality?

Posted: 15 Oct 2015

See all articles by Graham Partington

Graham Partington

University of Sydney - School of Business - Finance Discipline; Financial Research Network (FIRN)

Richard Philip

University of Sydney Business School

Amy Kwan

University of Sydney Business School

Date Written: October 13, 2015

Abstract

This report discusses how high frequency trading (HFT) has changed the dynamics of the market and whether traditional academic measures of market “quality” are relevant in the new world of electronic trading. Using existing measures of market quality, which were designed over 20 years ago, much of the academic literature suggests HFT is beneficial for market quality. However, a closer examination of HFT reveals that the results may not be so beneficial and that many of these metrics are no longer applicable. This paper presents new metrics for market “quality”, which suggests that with the growth in HFT the probability of institutions getting orders filled has fallen and the time required to achieve a fill has increased. Additionally HFT trades tend to supply liquidity on the thick side of the order book, where it is not needed.

Suggested Citation

Partington, Graham and Philip, Richard and Kwan, Amy, Is High Frequency Trading Beneficial to Market Quality? (October 13, 2015). CIFR Paper No. 083/2015, Available at SSRN: https://ssrn.com/abstract=2673873 or http://dx.doi.org/10.2139/ssrn.2673873

Graham Partington (Contact Author)

University of Sydney - School of Business - Finance Discipline ( email )

Building H69
Sydney NSW, 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Richard Philip

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Amy Kwan

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
2,470
PlumX Metrics