Algorithmic Trading and Information

Terrence Hendershott () and Ryan Riordan ()
Additional contact information
Terrence Hendershott: UC Berkeley, http://faculty.haas.berkeley.edu/hender/
Ryan Riordan: Karlsruhe Institute of Technology, http://www.im.uni-karlsruhe.de/Default.aspx?PageId=376&lang=en

No 09-08, Working Papers from NET Institute

Abstract: We examine algorithmic trades (AT) and their role in the price discovery process in the 30 DAX stocks on the Deutsche Boerse. AT liquidity demand represents 52% of volume and AT supplies liquidity on 50% of volume. AT act strategically by monitoring the market for liquidity and deviations of price from fundamental value. AT consume liquidity when it is cheap and supply liquidity when it is expensive. AT contribute more to the efficient price by placing more efficient quotes and AT demanding liquidity to move the prices towards the efficient price.

Keywords: Algorithmic trading; information technology; price discovery; market microstructure; price efficiency (search for similar items in EconPapers)
JEL-codes: D4 D8 G1 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2009-03, Revised 2009-08
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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