Intraday Return Predictability, Informed Limit Orders, and Algorithmic Trading

42 Pages Posted: 7 Nov 2015 Last revised: 30 Jul 2018

Darya Yuferova

Norwegian School of Economics (NHH) - Department of Finance

Date Written: July 10, 2018

Abstract

I study the effect of algorithmic trading on the strategic choice of informed traders for market versus limit orders. I proxy for this choice by means of intraday return predictability from market and limit orders around the NYSE Hybrid Market introduction. My findings show that the increase in algorithmic trading by 16% leads to an increase in informed trading through both market and limit orders at the inner levels of the limit order book by 3.5% and 6.2%, respectively. The change in the informativeness of different order types depends on the change in the competition among algorithmic traders.

Keywords: intraday predictability, informed trading, algotihmic trading, limit order book

JEL Classification: G14

Suggested Citation

Yuferova, Darya, Intraday Return Predictability, Informed Limit Orders, and Algorithmic Trading (July 10, 2018). Available at SSRN: https://ssrn.com/abstract=2686082 or http://dx.doi.org/10.2139/ssrn.2686082

Darya Yuferova (Contact Author)

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

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