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Risk and Return in High-Frequency Trading
Johnson Graduate School of Management, Cornell University.
Foster School of Business, University of Washington.
Stockholm University, Faculty of Social Sciences, Stockholm Business School, Finance.ORCID iD: 0000-0003-0055-5121
Brevan Howard Centre for Financial Analysis, Imperial College Business School.
(English)In: Journal of financial and quantitative analysis, ISSN 0022-1090, E-ISSN 1756-6916Article in journal (Refereed) Accepted
Abstract [en]

We study performance and competition among high-frequency traders (HFTs). We construct measures of latency and find that differences in relative latency account for large differences in HFTs’ trading performance. HFTs that improve their latency rank due to colocation upgrades see improved trading performance. The stronger performance associated with speed comes through both the short-lived information channel and the risk management channel, and speed is useful for various strategies including market making and cross-market arbitrage. We find empirical support for many predictions regarding relative latency competition.

Keyword [en]
high-frequency trading, low latency, market microstructure
National Category
Business Administration
Research subject
Business Administration; Economics
Identifiers
URN: urn:nbn:se:su:diva-150868OAI: oai:DiVA.org:su-150868DiVA: diva2:1171461
Available from: 2018-01-08 Created: 2018-01-08 Last updated: 2018-01-08Bibliographically approved

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CiteExportLink to record
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