 Is high-frequency trading tiering the financial markets?Gianluca Virgilio Research in International Business and Finance, 2017, vol. 41, issue C, 158-171 Abstract: Some academic research has identified the possibility of High-Frequency Trading (HFT) creating a two tier market, in which the fast traders mostly deal with each other at most favourable prices and spread, leaving the slower investors to share the least profitable deals. Yet, although intriguing, this view has been seldom quantitatively investigated − and that is the gap found in previous research. A computer simulation has been produced to mimic the behaviour of both slow and fast traders, each category showing characteristics consistent with their behaviour on the markets. In particular, High-Frequency (HF) traders show their preference for aggressive orders when the bid-ask spread is tight and are less aggressive when spread is wide. The Low-Frequency (LF) traders are then forced to live with the remaining deals, hoping to profit from longer term price movements. The purpose of this piece of research is to verify whether HF traders (HFTs) tend to deal with each other and, something not investigated by previous studies, if LF traders also mainly restrict their trading with other slow traders. Keywords: Agent-Base Model; High-frequency trading; Simulation; Split; Tier (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:41:y:2017:i:c:p:158-171 DOI: 10.1016/j.ribaf.2017.04.031 Access Statistics for this article Research in International Business and Finance is currently edited by T. Lagoarde Segot More articles in Research in International Business and Finance from Elsevier |
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