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

See all articles by Irene Aldridge

Irene Aldridge

AbleMarkets.com; Cornell University; BigDataFinance.org; ABLE Alpha Trading, LTD

Date Written: June 1, 2017

Abstract

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

Aldridge, Irene, Chapter 27: Can Humans Dance with Machines? (June 1, 2017). 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.. Available at SSRN: https://ssrn.com/abstract=2984888

Irene Aldridge (Contact Author)

AbleMarkets.com ( email )

New York, NY 10128
United States

HOME PAGE: http://www.AbleMarkets.com

Cornell University ( email )

Ithaca, NY 14853
United States

BigDataFinance.org ( email )

United States

ABLE Alpha Trading, LTD ( email )

New York, NY 10004
United States

HOME PAGE: http://www.ablealpha.com

Register to save articles to
your library

Register

Paper statistics

Abstract Views
443
PlumX Metrics