High-Frequency Trading Competition
Jonathan Brogaard and
Corey Garriott ()
Journal of Financial and Quantitative Analysis, 2019, vol. 54, issue 4, 1469-1497
Theory on high-frequency traders (HFTs) predicts that market liquidity for a security decreases in the number of HFTs trading the security. We test this prediction by studying a new Canadian stock exchange, Alpha, that experienced the entry of 11 HFTs over 4 years. We find that bidâ€“ask spreads on Alpha converge to those at the Toronto Stock Exchange as more HFTs trade on Alpha. Effective and realized spreads for non-HFTs improve as HFTs enter the market. To explain the contrast with theory, which models the HFT as a price competitor, we provide evidence more consistent with HFTs fitting a quantity-competitor framework.
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Working Paper: High-Frequency Trading Competition (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:54:y:2019:i:04:p:1469-1497_00
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