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High-Frequency Trading Strategies

68 Pages Posted: 25 May 2017  

Michael A. Goldstein

Babson College - Finance Division

Amy Kwan

University of Sydney Business School

Richard Philip

University of Sydney Business School

Date Written: May 23, 2017

Abstract

Examining the order book imbalance immediately before each order submission, cancelation and trade, we show high frequency traders (HFT) supply liquidity on the thick side of the order book and demand liquidity from the thin side. This strategic behavior is more pronounced during volatile periods and when trading speeds increase. However, by competing with non-HFT limit orders, HFT impose a welfare externality by crowding out slower non-HFT limit orders. Overall, we document an important information channel driving HFT behavior.

Keywords: High-frequency trading, institutional traders, retail traders, limit order book

JEL Classification: G10, G14

Suggested Citation

Goldstein, Michael A. and Kwan, Amy and Philip, Richard, High-Frequency Trading Strategies (May 23, 2017). Available at SSRN: https://ssrn.com/abstract=2973019

Michael Goldstein

Babson College - Finance Division ( email )

320 Tomasso Hall
Babson Park, MA 02457-0310
United States
781-239-4402 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://faculty.babson.edu/goldstein/

Amy Kwan (Contact Author)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Richard Philip

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

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