Algorithmic Trading Efficiency and its Impact on Market-Quality

Ritesh Kumar Dubey (), A. Sarath Babu (), Rajneesh Ranjan Jha () and Urvashi Varma ()
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Ritesh Kumar Dubey: GITAM Institute of Management, GITAM Deemed to be University
A. Sarath Babu: Institute of Management Technology (IMT)
Rajneesh Ranjan Jha: IBS Hyderabad, IFHE University
Urvashi Varma: Amity Business School (ABS)

Asia-Pacific Financial Markets, 2022, vol. 29, issue 3, No 1, 409 pages

Abstract: Abstract Algorithmic Trading (AT) has been despised by retail traders and market regulators for its speed. AT has taken the hit for creating un-intended volatility and hampering the market quality due to skepticism of quote-stuffing and front-running, however in reality the evidence pertaining to ill impacts of AT are yet to be found. This study takes a step in the direction to decriminalize algorithmic trading and give AT it’s due towards improvement in market quality. This study uses direct identification of AT from Indian Stock Market (National Stock Exchange, NSE) and uses Order-to-Trade Ratio (OTR) as a measure of AT efficiency and paves the way for regulators and traders to come forward and appreciate the positive impact of AT on market quality.

Keywords: Algorithmic trading; Algorithmic trading efficiency; High frequency trading; HFT; Market quality; Emerging markets; Market microstructure; Order-to-trade ratio (search for similar items in EconPapers)
JEL-codes: G10 G14 G15 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10690-021-09353-5

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