Risk and Return in High-Frequency Trading

Matthew Baron, Björn Hagströmer () and Andrei Kirilenko
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Björn Hagströmer: Stockholm University

No GRU_2017_018, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: We study performance and competition among high-frequency traders (HFTs). We construct measures of latency and find that differences in relative latency account for large differences in HFTs’ trading performance. HFTs that improve their latency rank due to colocation upgrades see improved trading performance. The stronger performance associated with speed comes through both the short-lived information channel and the risk management channel, and speed is useful for various strategies including market making and cross-market arbitrage. We find empirical support for many predictions regarding relative latency competition.

Keywords: high-frequency trading; low latency; market microstructure (search for similar items in EconPapers)
JEL-codes: G10 G19 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2017-12-08
New Economics Papers: this item is included in nep-mst
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Published in Journal of Financial and Quantitative Analysis, Volume 54, Issue 3 June 2019 , pp. 993-1024

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https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232017-018%20Baron%20et%20al.pdf (application/pdf)

Related works:
Journal Article: Risk and Return in High-Frequency Trading (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:cth:wpaper:gru_2017_018

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