Competition among high-frequency traders, and market quality

Johannes Breckenfelder

No 2290, Working Paper Series from European Central Bank

Abstract: We study empirically how competition among high-frequency traders (HFTs) affects their trading behavior and market quality. Our analysis exploits a unique dataset, which allows us to compare environments with and without high-frequency competition, and contains an exogenous event - a tick size reform - which we use to disentangle the effects of the rising share of high-frequency trading in the market from the effects of high-frequency competition. We find that when HFTs compete, their speculative trading increases. As a result, market liquidity deteriorates and short-term volatility rises. Our findings hold for a variety of market quality and high-frequency trading behavior measures. JEL Classification: G12, G14, G15, G18, G23, D4, D61

Keywords: competition; high-frequency trading; high-frequency trading strategies; tick size reform (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-mst
Note: 1125999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Competition among high-frequency traders and market quality (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20192290

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