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Algorithmic Trading Efficiency and its Impact on Market-Quality

Author

Listed:
  • Ritesh Kumar Dubey

    (GITAM Institute of Management, GITAM Deemed to be University)

  • A. Sarath Babu

    (Institute of Management Technology (IMT))

  • Rajneesh Ranjan Jha

    (IBS Hyderabad, IFHE University)

  • Urvashi Varma

    (Amity Business School (ABS))

Abstract

Algorithmic Trading (AT) has been despised by retail traders and market regulators for its speed. AT has taken the hit for creating un-intended volatility and hampering the market quality due to skepticism of quote-stuffing and front-running, however in reality the evidence pertaining to ill impacts of AT are yet to be found. This study takes a step in the direction to decriminalize algorithmic trading and give AT it’s due towards improvement in market quality. This study uses direct identification of AT from Indian Stock Market (National Stock Exchange, NSE) and uses Order-to-Trade Ratio (OTR) as a measure of AT efficiency and paves the way for regulators and traders to come forward and appreciate the positive impact of AT on market quality.

Suggested Citation

  • Ritesh Kumar Dubey & A. Sarath Babu & Rajneesh Ranjan Jha & Urvashi Varma, 2022. "Algorithmic Trading Efficiency and its Impact on Market-Quality," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(3), pages 381-409, September.
    • Handle: RePEc:kap:apfinm:v:29:y:2022:i:3:d:10.1007_s10690-021-09353-5
    DOI: 10.1007/s10690-021-09353-5
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    More about this item

    Keywords

    Algorithmic trading; Algorithmic trading efficiency; High frequency trading; HFT; Market quality; Emerging markets; Market microstructure; Order-to-trade ratio;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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