Chapter 27: Can Humans Dance with Machines?
Financial Behavior: Players, Services, Products, and Markets. H. Kent Baker, Greg Filbeck, and Victor Ricciardi, editors, 499-519, New York, NY: Oxford University Press, 2017.
Posted: 14 Jun 2017
Date Written: June 1, 2017
This chapter examines high-frequency trading (HFT), including core groups of strategies and resulting impacts. Using order-by-order market data analysis, the chapter shows that much of what is often construed to be useless noise of order cancellations actually represents meaningful order revisions, part of the real-time market bargaining. The chapter further shows that a small fraction of the order cancellations are a product of purely toxic liquidity. Market participants of different frequencies tend to react differently to such toxic orders, with higher-frequency traders largely ignoring and lower-frequency investors interacting with toxic liquidity.
Keywords: behavioral finance, behavioural finance, high-frequency trading, market data analysis, toxic orders, liquidity
JEL Classification: A12, D81, G00, G30, G10, M00, M10, M41
Suggested Citation: Suggested Citation