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High-frequency, Algorithmic Spillovers Between NASDAQ and Forex

Takatoshi Ito () and Masahiro Yamada

No 21122, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We empirically examine the order flows spillovers between Nasdaq and the Forex markets in 2008 and 2009. With emphasis on a role of high-frequency traders (HFTs) who aggregate information between the two markets as well as within each market, our results show that HFTs in Nasdaq trade intensively on the market-wide information more rapidly than other market participants, and that their order flows contain more information about the Forex rates than those of the Forex themselves. As a result, order flows by HFTs in Nasdaq significantly lead those in the Forex activities. Reflecting each market's exposures to the common shocks during the Global Financial crisis, these spillovers vary over time, and HFTs have increased their influences. These empirical results are consistent with theoretical predictions of the rational expectations model of multi-asset trading.

JEL-codes: F31 G12 G14 G15 G23 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-mst
Note: IFM
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