Using the staggered entry of Chi-X in 12 European equity markets as a source of exogenous variation in high frequency trading (HFT), we find that HFT causes significant increases in co-movement in returns and in liquidity. About one-third of the increase in return co-movement is due to faster...

Assets are traded on many places that are remotely situated. An outstanding question is how those places individually contribute to price discovery. We provide way to study this problem in the context of high frequency data. We propose a measure evaluating the permanent impact of a shock on a...

High-frequency trading (HFT) based on artificial intelligence (AI) has been quickly adopted as market practice and its impact on investors' trading behavior and financial market has raised an increasing concern about managing AI in finance. Due to the extreme diversity and complexity of FinTech...

We study market-making high-frequency trader (HFT) dynamics around large institutional trades in Canadian equities markets using order-level data with masked trader identification. Following a regulatory change that negatively affected HFT order activity, we find that bid-ask spreads increased...

Speeding up the exchange does not necessarily improve liquidity. On the one hand, more speed enables a high-frequency market maker (HFM) to update his quotes faster on incoming news. This reduces his payoff risk and thus lowers the competitive bid-ask spread. On the other hand, HFM price quotes...

Theory on high-frequency traders (HFT) predicts that market liquidity for a security decreases in the number of HFT trading the security. We test this prediction by studying a new Canadian stock exchange, Alpha, that experienced the entry of 11 HFT firms over four years. Bid-ask spreads on Alpha...

Traders differ in speed and their speed differences matter. I model strategic interactions induced when high frequency traders (HFTs) have different speeds in an extended Kyle (1985) framework. HFTs are assumed to anticipate incoming orders and trade rapidly to exploit normal-speed traders'...

We present a dynamic equilibrium model to understand differences and interactions between informational and trading speed advantages. The model is a stochastic asynchronous game, with endogenous trading decisions and non-cooperation among agents, in a limit order market. We show that welfare and...

When price competition is constrained by tick size, speed allocates the resources due to the time priority rule. We demonstrate three implications of competition in speed. 1) We find more high frequency liquidity provision for lower price stocks with high market cap, where the one cent tick size...

Do high frequency traders affect transaction prices? In this paper we derive distributions of transaction prices in limit order markets populated by low frequency traders (humans) before and after the entrance of a high frequency trader (machine). We find that the presence of a machine is likely...