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Can HFT profit in Chinese stock market?

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  • Liu, Wei

Abstract

We develop a new method to proxy the High-Frequency Trading (HFT) activity of Chinese stock market by searching order-trade data with low latency and message linkage. We find that daily average percent of HFT detected by the method is 3.8029% between September 2014 and December 2020. Meanwhile, stocks with the highest participation of HFT manifest best profitability, and the profit advantage declines gradually after 2019.

Suggested Citation

  • Liu, Wei, 2021. "Can HFT profit in Chinese stock market?," Economics Letters, Elsevier, vol. 209(C).
    • Handle: RePEc:eee:ecolet:v:209:y:2021:i:c:s016517652100392x
    DOI: 10.1016/j.econlet.2021.110115
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    References listed on IDEAS

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    1. Baron, Matthew & Brogaard, Jonathan & Hagströmer, Björn & Kirilenko, Andrei, 2019. "Risk and Return in High-Frequency Trading," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(3), pages 993-1024, June.
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    6. Todd G Griffith & Robert A Van Ness, 2020. "Order Cancellations, Fees, and Execution Quality in U.S. Equity Options [Can order exposure be mandated]," Review of Financial Studies, Society for Financial Studies, vol. 33(4), pages 1534-1564.
    7. Hasbrouck, Joel & Saar, Gideon, 2013. "Low-latency trading," Journal of Financial Markets, Elsevier, vol. 16(4), pages 646-679.
    8. Ekinci, Cumhur & Ersan, Oguz, 2018. "A new approach for detecting high-frequency trading from order and trade data," Finance Research Letters, Elsevier, vol. 24(C), pages 313-320.
    9. Brogaard, Jonathan & Carrion, Allen & Moyaert, Thibaut & Riordan, Ryan & Shkilko, Andriy & Sokolov, Konstantin, 2018. "High frequency trading and extreme price movements," Journal of Financial Economics, Elsevier, vol. 128(2), pages 253-265.
    10. Hoffmann, Peter, 2014. "A dynamic limit order market with fast and slow traders," Journal of Financial Economics, Elsevier, vol. 113(1), pages 156-169.
    11. Bonnie F. Van Ness & Robert A. Van Ness & Ethan D. Watson, 2015. "Canceling Liquidity," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 38(1), pages 3-33, March.
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    Cited by:

    1. Shiqi Gong & Shuaiqiang Liu & Danny D. Sun, 2023. "Optimal Market Making in the Chinese Stock Market: A Stochastic Control and Scenario Analysis," Papers 2306.02764, arXiv.org.

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    More about this item

    Keywords

    High-frequency trading (HFT); HFT detection; Profitability; Chinese stock market;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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