Algorithmic Trading and Market Quality: International Evidence of the Impact of Errors in Colocation Dates

28 Pages Posted: 29 Jun 2021 Last revised: 8 Jul 2021

See all articles by Michael J. Aitken

Michael J. Aitken

Macquarie Graduate School of Management

Douglas J. Cumming

Florida Atlantic University

Feng Zhan

University of Western Ontario

Date Written: June 17, 2021

Abstract

This paper examines evidence on colocation dates and their impact on market efficiency. International colocation dates can be sourced from a number of avenues including: (1) an 'exchange's news announcements and reports, (2) news media, and (3) by direct communication with the officers of an exchange. Boehmer et al. (2021) report colocation dates based on (1) and (2) and do not reference prior work that reports colocation dates that are primarily sourced from (3). The consequence is that the discrepancies between prior studies and Boehmer et al. (2021) are significant and economically meaningful: the errors average 12.75 months with the largest being 46 months. This paper documents these discrepancies and provides evidence of how these differences in colocation dates matter for evidence of their impact on market efficiency.

Keywords: High frequency trading, Algorithmic trading, Colocation

JEL Classification: G12, G14, G18

Suggested Citation

Aitken, Michael J. and Cumming, Douglas J. and Zhan, Feng, Algorithmic Trading and Market Quality: International Evidence of the Impact of Errors in Colocation Dates (June 17, 2021). Available at SSRN: https://ssrn.com/abstract=3868966 or http://dx.doi.org/10.2139/ssrn.3868966

Michael J. Aitken

Macquarie Graduate School of Management ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Feng Zhan

University of Western Ontario ( email )

1151 Richmond Street
London, Ontario N6A 5B8
Canada

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