High-Frequency Trading Strategies

Michael Goldstein (), Amy Kwan () and Richard Philip ()
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Michael Goldstein: Babson College, Babson Park, Massachusetts 02457
Amy Kwan: University of New South Wales, Sydney New South Wales 2052, Australia
Richard Philip: University of Sydney, Camperdown New South Wales 2006, Australia

Management Science, 2023, vol. 69, issue 8, 4413-4434

Abstract: We examine the effect of high-frequency trading on market quality from the perspective of a limit order trader. By competing with slower limit order traders, high-frequency traders impose a welfare externality by selectively crowding out the most profitable limit orders. The order book imbalance immediately before each order submission, cancellation, and trade suggests that high-frequency traders strategically use limit order book information to supply liquidity on the thick side of the order book and demand liquidity from the thin side. This strategic behavior is more pronounced during volatile periods and when trading speeds increase.

Keywords: high-frequency trading; institutional investors; retail investors (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:8:p:4413-4434

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