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Risk and Return in High-Frequency Trading
Stockholm University, Faculty of Social Sciences, Stockholm Business School, Finance.ORCID iD: 0000-0003-0055-5121
2019 (English)In: Journal of financial and quantitative analysis, ISSN 0022-1090, E-ISSN 1756-6916, Vol. 54, no 3, p. 993-1024Article in journal (Refereed) Published
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.

Place, publisher, year, edition, pages
2019. Vol. 54, no 3, p. 993-1024
Keywords [en]
high-frequency trading, low latency, market microstructure
National Category
Business Administration
Research subject
Business Administration
Identifiers
URN: urn:nbn:se:su:diva-159800DOI: 10.1017/S0022109018001096ISI: 000467742900001OAI: oai:DiVA.org:su-159800DiVA, id: diva2:1245844
Available from: 2018-09-06 Created: 2018-09-06 Last updated: 2019-06-24Bibliographically approved

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