High frequency trading and end-of-day price dislocation

Michael Aitken, Douglas Cumming*, Feng Zhan

*Corresponding author for this work

Research output: Contribution to journalArticle

30 Citations (Scopus)

Abstract

We show that the presence of high frequency trading (HFT) has significantly mitigated the frequency and severity of end-of-day price dislocation. The effect of HFT is more pronounced on days when end of day price dislocation is more likely to be the result of market manipulation. Moreover, the effect of HFT is more pronounced than the role of trading rules, surveillance, enforcement and legal conditions in curtailing the frequency and severity of end-of-day price dislocation. We show our findings are robust to different proxies of the start of HFT by trade size, cancellation of orders, and co-location.

Original languageEnglish
Pages (from-to)330-349
Number of pages20
JournalJournal of Banking and Finance
Volume59
DOIs
Publication statusPublished - 1 Oct 2015

Keywords

  • High frequency trading
  • Manipulation
  • Price dislocation

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