The Competitive Landscape of High-Frequency Trading Firms

Forthcoming in the Review of Financial Studies

60 Pages Posted: 10 Mar 2016 Last revised: 10 Mar 2018

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business

Dan Li

The University of Hong Kong - School of Economics and Finance

Gideon Saar

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: September 13, 2017

Abstract

We examine product differentiation in the high-frequency trading (HFT) industry, where the “products” are secretive proprietary trading strategies. We demonstrate how principal component analysis can be used to detect underlying strategies that are common to multiple HFT firms, and show that there are three product categories with distinct attributes. We study how HFT competition in each product category impacts the market environment, presenting evidence that indicates how it influences the short-horizon volatility of stocks as well as the viability of trading venues.

Keywords: high-frequency trading, HFT, competition, market microstructure, product market competition, trading strategies; product differentiation

JEL Classification: G10, L10

Suggested Citation

Boehmer, Ekkehart and Li, Dan and Saar, Gideon, The Competitive Landscape of High-Frequency Trading Firms (September 13, 2017). Forthcoming in the Review of Financial Studies. Available at SSRN: https://ssrn.com/abstract=2745367 or http://dx.doi.org/10.2139/ssrn.2745367

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business ( email )

Singapore

Dan Li

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong

Gideon Saar (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

431 Sage Hall
Ithaca, NY 14853
United States
607-255-7484 (Phone)
607-255-5993 (Fax)

HOME PAGE: https://www.johnson.cornell.edu/Faculty-And-Research/Profile?id=gs25

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