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Does More Frequent Trading Increase the Volatility? – Theoretical Evidence at Asset and Portfolio Level

KiHoon Jimmy Hong

No 332, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: This paper investigates the sensitivity of asset and portfolio price volatility with respect to the minimum available trading interval that the price is quoted. The objective of the study is to find the theoretical impact of high frequency trading on asset and portfolio volatilities, using a simple stochastic model. The paper finds that if high frequency trading is available, both asset and portfolio price volatility tend to decrease. The result suggests that the regulators who are concerned with the volatility induced by high frequency trading should concentrate the regulatory effort on the behavioral aspect of the high frequency traders rather than on how frequent they trade.

Keywords: High Frequency Trading; Volatility; Technical Analysis; Time Series Momentum (search for similar items in EconPapers)
JEL-codes: G10 G18 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2013-05-01
New Economics Papers: this item is included in nep-cfn and nep-mst
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https://www.uts.edu.au/sites/default/files/qfr-archive-03/QFR-rp332.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:uts:rpaper:332

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