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How aggressive are high-frequency traders?
Stockholm University, Faculty of Social Sciences, Stockholm Business School, Finance.
Stockholm University, Faculty of Social Sciences, Stockholm Business School, Finance.
Stockholm University, Faculty of Social Sciences, Stockholm Business School, Finance.
2014 (English)In: The Financial Review, ISSN 0732-8516, E-ISSN 1540-6288, Vol. 49, no 2, 395-419 p.Article in journal (Refereed) Published
Abstract [en]

We study order aggressiveness of market-making high-frequency traders (MM-HFTs), opportunistic HFTs (Opp-HFTs), and non-HFTs. We find that MM-HFTs follow their own group's previous order submissions more than they follow other traders’ orders. Opp-HFTs and non-HFTs tend to split market orders into small portions submitted in sequence. HFTs submit more (less) aggressive orders when the same-side (opposite-side) depth is large, and supply liquidity when the bid–ask spread is wide. Thus, HFTs adhere strongly to the tradeoff between waiting cost and the cost of immediate execution. Non-HFTs care less about this tradeoff, but react somewhat stronger than HFTs to volatility.

Place, publisher, year, edition, pages
2014. Vol. 49, no 2, 395-419 p.
Keyword [en]
high-frequency trading, aggressiveness, order submission, liquidity, volatility
National Category
Business Administration
Research subject
Business Administration
Identifiers
URN: urn:nbn:se:su:diva-102540DOI: 10.1111/fire.12041OAI: oai:DiVA.org:su-102540DiVA: diva2:710838
Available from: 2014-04-08 Created: 2014-04-08 Last updated: 2017-12-05Bibliographically approved
In thesis
1. Essays on Market Design and Market Quality
Open this publication in new window or tab >>Essays on Market Design and Market Quality
2015 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This dissertation contains four studies on different market structures and their impact on market quality.

Article I studies the effect of introducing stock index futures contracts on the underlying stocks. The results indicate a lower liquidity level in the underlying stocks. However, after introducing market makers to the futures market, liquidity improves in the underlying stocks while trading activity and volatility remain unchanged.

Article II investigates price discovery in the gold futures markets in China and the US. The gold supply and demand from China have been among the world’s largest in recent years. The results show that the gold futures markets in China and the US are cointegrated. Despite its short history, the Chinese gold futures market contributes more to the price discovery than the US market.

Article III examines the order aggressiveness of high-frequency traders (HFTs) and non-HFTs. We find that market-making HFTs follow their own group's previous order more than they follow other traders’ orders. Opportunistic HFTs and non-HFTs tend to split market orders into small portions and submit them in sequences. HFTs adhere strongly to the trade-off between waiting cost and the cost of immediate execution. Non-HFTs care less about this trade-off, but react somewhat stronger to volatility than HFTs.

Article IV studies the impact of introducing contracted liquidity providers to the liquid stocks in Sweden. The results show that liquidity improves after the liquidity providers’ introduction. The liquidity improvement is not accompanied by a lower liquidity level on Chi-X, a major competitor to the Swedish market. Both the order processing cost and adverse selection cost reduce on the Swedish stock market after contracting the liquidity providers.

Place, publisher, year, edition, pages
Stockholm: Stockholm Business School, Stockholm University, 2015. 14 p.
Keyword
index futures market, underlying stock market, liquidity, volatility, gold futures market, price discovery, high frequency traders, aggressiveness, order submission, liquidity provider, adverse selection cost
National Category
Business Administration
Research subject
Business Administration
Identifiers
urn:nbn:se:su:diva-119577 (URN)978-91-7649-250-5 (ISBN)
Public defence
2015-10-07, Gröjersalen, hus 3, Kräftriket, Roslagsvägen 101, Stockholm, 13:00 (English)
Opponent
Supervisors
Note

At the time of the doctoral defense, the following papers were unpublished and had a status as follows: Paper 1: Manuscript. Paper 2: Manuscript. Paper 4: Manuscript.

Available from: 2015-09-15 Created: 2015-08-17 Last updated: 2015-09-16Bibliographically approved

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