The Intensity of High-Frequency Feedback Trading and its Impact on Market Quality

40 Pages Posted: 17 Dec 2015

See all articles by Die Wan

Die Wan

Zhejiang Gongshang University (ZJGSU)

Xiaoguang Yang

Chinese Academy of Sciences (CAS)

Date Written: December 16, 2015


Based on Level-2 transaction data of individual stocks in Chinese market, the paper constructs measures to directly estimate positive feedback trading intensity and its asymmetry in high-frequency intervals, and then investigates the impact of feedback trading on market quality. Heterogeneous positive feedback traders are found in high-frequency trading intervals of individual stocks, and the buying-winners effect is generally more intensive than selling-losers effect. The asymmetric positive feedback traders contribute to high volatility, high return autocorrelations, high variance ratios and low speed of price discovery. The asymmetry is positively related to aggressive trading orders and hence large price impact, while positive feedback trading reduces both liquidity provision and trading cost. Collectively, the high-frequency asymmetric positive feedback trading leads to an active-trading but less efficient market.

Keywords: Asymmetric positive feedback trading, individual stocks, high-frequency intervals, market quality

JEL Classification: G15

Suggested Citation

Wan, Die and Yang, Xiaoguang, The Intensity of High-Frequency Feedback Trading and its Impact on Market Quality (December 16, 2015). Available at SSRN:

Die Wan (Contact Author)

Zhejiang Gongshang University (ZJGSU) ( email )


Xiaoguang Yang

Chinese Academy of Sciences (CAS) ( email )

52 Sanlihe Rd.
Datun Road, Anwai
Beijing, Xicheng District 100864

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