Effect of High-Frequency Trading on Mutual Fund Performance

The Financial Review 58, no. 2 (2023): 369-394.

51 Pages Posted: 3 Feb 2016 Last revised: 8 Apr 2023

See all articles by Nan Qin

Nan Qin

College of Business, Northern Illinois University

Vijay Singal

Virginia Tech

Date Written: November 7, 2022

Abstract

We find that high-frequency trading (HFT) in stocks held by mutual funds negatively affects fund performance: when sorted by HFT intensity of holdings, funds in the top quintile underperform funds in the bottom quintile by 2.64% per year. The negative relation can be at least partially explained by the illiquidity premium induced by high-frequency traders’ preference for more liquid stocks. This reason for underperformance of mutual funds has not been previously explored or documented. In addition, we do not find evidence to support the concern that HFT raises trading costs of mutual funds.

Keywords: high-frequency trading, illiquidity premium, mutual fund performance, trading costs

JEL Classification: G12, G14, G23

Suggested Citation

Qin, Nan and Singal, Vijay, Effect of High-Frequency Trading on Mutual Fund Performance (November 7, 2022). The Financial Review 58, no. 2 (2023): 369-394., Available at SSRN: https://ssrn.com/abstract=2726427 or http://dx.doi.org/10.2139/ssrn.2726427

Nan Qin (Contact Author)

College of Business, Northern Illinois University ( email )

740 Garden Road
236G
DEKALB, IL 60115
United States

Vijay Singal

Virginia Tech ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States
5402317750 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
258
Abstract Views
1,904
Rank
224,497
PlumX Metrics