Do High-Frequency Traders Improve your Implementation Shortfall?

Journal of Investment Management, forthcoming

29 Pages Posted: 16 Apr 2019 Last revised: 9 May 2019

Date Written: May 3, 2019


We take advantage of a regulatory change that effectively imposed a “tax” on HFT order activity on Canadian equity venues to study the resulting effect on the execution costs of large institutional trades. We find that bid-ask spreads increase and price impact decreases for these trades following the regulatory change. The price impact effect is strongest for informed institutional traders. Our evidence indicates that this tax on high-frequency trading is associated with higher transaction costs for small, uninformed trades and lower transaction costs for large, informed trades. Hence, the tax increased the subsidy for informed traders from uninformed traders.

Keywords: high-frequency trading, institutional orders, implementation shortfall, transaction costs, transaction tax

JEL Classification: G1, G11, G18, G24

Suggested Citation

Korajczyk, Robert A. and Murphy, Dermot, Do High-Frequency Traders Improve your Implementation Shortfall? (May 3, 2019). Journal of Investment Management, forthcoming. Available at SSRN: or

Robert A. Korajczyk

Northwestern University ( email )

Kellogg School of Management
2211 Campus Drive, Room 4357
Evanston, IL 60208-0898
United States
847-491-8336 (Phone)
847-491-7781 (Fax)


Dermot Murphy (Contact Author)

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States
312-355-4372 (Phone)


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