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Are Front-Running Hfts Harmful?

In this paper, the interactions between a large informed trader and an HFT who can predict the former's incoming order are studied in the extended Kyle's model. Equilibria under various specific situations are discussed, we conclude that HFT always front-runs and the large trader could be favored when: (1) there is sufficient noise trading with HFT's liquidity-consuming trading; (2) HFT's signal is vague enough. Besides, we find surprisingly that (1) increasing the noise in HFT's signal might decrease large trader's profit; (2) when there are few market noises, although HFT nearly does nothing, the large trader is still hurt
Year of publication:
2023
Authors: Xu, Ziyi ; Cheng, Xue
Publisher: [S.l.] : SSRN
freely available
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