Competition among high-frequency traders and market quality

Johannes Breckenfelder

Journal of Economic Dynamics and Control, 2024, vol. 166, issue C

Abstract: I study how competition among high-frequency traders (HFTs) affects their trading behavior and market quality. The analysis exploits a unique dataset, which allows comparing environments with and without high-frequency competition, and contains an event - a tick size reform - which I use to separate the effects of high-frequency trading competition from the effects of the rising share of high-frequency trading in the market. I find that when HFTs compete in a stock, their speculative trading increases. Furthermore, market quality in that stock deteriorates. My findings hold for a variety of market quality and high-frequency trading behavior measures.

Keywords: High-frequency trading; Competition; High-frequency trading strategies; Tick size reform (search for similar items in EconPapers)
JEL-codes: D4 D61 G12 G14 G15 G18 G23 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Competition among high-frequency traders, and market quality (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:166:y:2024:i:c:s0165188924001143

DOI: 10.1016/j.jedc.2024.104922

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