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Commonality and contrarian trading among algorithmic traders

Devika Arumugam and P. Krishna Prasanna

Journal of Behavioral and Experimental Finance, 2021, vol. 30, issue C

Abstract: We examine the trading behavior of two heterogeneous groups of Algorithmic Traders (ATs), namely High-Frequency Traders (HFTs) and Buy-side Algorithmic Traders (BATs). We find that these two groups exhibit within-group and between-group commonality in trading volumes, wherein within-group commonality of BATs is higher than that of HFTs. Also, there exists within-group commonality in directional measures of trade execution. We find new evidence of between-group contrarian trading behavior, which is more pronounced among BATs than HFTs. The presence of within-group commonality and between-group contrarian trading among ATs ensures market stability and price discovery.

Keywords: Algorithmic trading; High-frequency trading; Commonality; Contrarian; NSE (search for similar items in EconPapers)
JEL-codes: G12 G14 G20 G23 G40 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jbef.2021.100495

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