Wait or Trade?
50 Pages Posted: 7 Nov 2015 Last revised: 5 Jun 2019
Date Written: June 3, 2019
I study the effect of high-frequency trading (HFT) activity on the strategic choice of informed traders for market (impatient, liquidity-consuming, "trade") versus limit (patient, liquidity-providing, "wait") orders. My findings show that an exogenous increase in HFT activity around the introduction of the NYSE Hybrid Market leads to a significant increase of both impatient and patient informed trading, with the latter effect being the dominant one. In other words, an exogenous increase in HFT activity relaxes the trade-off between price informativeness and market liquidity (especially for large stocks).
Keywords: Price Discovery, Limit Order Book, Liquidity Provision, High-Frequency Trading.
JEL Classification: G14
Suggested Citation: Suggested Citation