High-Frequency Trading Competition

Jonathan Brogaard, Corey Garriott and Anna Pomeranets

Staff Working Papers from Bank of Canada

Abstract: We analyze trading dynamics as successive high-frequency trading (HFT) firms begin to trade stocks in an equity market. Entrants compete with incumbents for volume, and there is crowding out. Earlier entry is associated with larger effects. After Passive HFT entry, incumbent spreads tighten. After Aggressive HFT entry, incumbent order flow loses informedness. Revenue datasuggest entry reduces the profitability of HFT activity. The results show that part of the value of HFT comes from its competitiveness.

Keywords: Financial markets; Market structure and pricing (search for similar items in EconPapers)
JEL-codes: G14 G20 L1 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014
New Economics Papers: this item is included in nep-cfn and nep-mst
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Citations: View citations in EconPapers (21)

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Journal Article: High-Frequency Trading Competition (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:14-19

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