High-Frequency Trading and Institutional Trading Costs
46 Pages Posted: 13 Feb 2018 Last revised: 17 Oct 2019
Date Written: October 17, 2019
Using data on Canadian bond futures, we examine how high-frequency traders (HFTs) interact with institutions building large positions. In contrast to recent findings, we find HFTs in the data act as small-sized liquidity suppliers, and we reject the hypothesis that they engage in back running, a predatory trading strategy. Using a quasi-experiment in November 2011, in which a number of HFTs started trading the bond future, we run a difference-in-differences event study and find more competition among HFTs improves implementation shortfall, effective spreads, and short-term price impacts for institutional trading in Canadian bond futures.
Keywords: High-frequency trading; Market microstructure; Financial markets; Institutional trading
JEL Classification: G20, G14, L10
Suggested Citation: Suggested Citation