Does high frequency algorithmic trading matter for non-AT investors?

Harry H. Kelejian and Purba Mukerji

Research in International Business and Finance, 2016, vol. 37, issue C, 78-92

Abstract: The extant literature has typically measured the impact of high frequency algorithmic trading (HFT) on short term outcomes, in seconds or minutes. We focus on outcomes of concern for longer term non-algorithm investors. We find in some cases HFT increases volatility arising from news relating to fundamentals. Furthermore HFT is associated with the transmission of that volatility across industries, and that transmission is based on short term correlations. Finally, we find that the period since the introduction of algorithmic trading (AT) has seen increases in both the variances and covariances of return volatility in most industries. However increases in the variances has not been uniform in that it has fallen sharply in a few industries. The magnitudes are such that, overall, AT has coincided with reduced return volatility variance.

Keywords: Algorithmic trading; Non-algorithmic investors; Volatility; Spatial econometrics (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:37:y:2016:i:c:p:78-92

DOI: 10.1016/j.ribaf.2015.10.014

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