Research and publications
Limit Order Markets, High Frequency Traders and Asset Prices
Do high frequency traders affect transaction prices? In this paper we derive the distribution of transaction prices in limit order markets populated by low frequency traders before and after the entrance of a high frequency trader (HFT). We find that in a market with an HFT, the distribution of transaction prices has more mass around the center and thinner far tails. The intra-trade duration decreases in proportion to the ratio of the low frequency orders arrival rates with and without the presence of the HFT; trading volume goes up in proportion to the same ratio.
Author(s):
Jakša Cvitanic, Andrei Kirilenko
Summary:
Do high frequency traders affect transaction prices? In this paper we derive the distribution of transaction prices in limit order markets populated by low frequency traders before and after the entrance of a high frequency trader (HFT). We find that in a market with an HFT, the distribution of transaction prices has more mass around the center and thinner far tails. The intra-trade duration decreases in proportion to the ratio of the low frequency orders arrival rates with and without the presence of the HFT; trading volume goes up in proportion to the same ratio.
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Register/Log in| Type : | Working paper |
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| Date : | 10/03/2011 |
| Keywords : |
Asset Pricing |
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