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How Does High-Frequency Trading Affect Low-Frequency Trading?

Author

Listed:
  • Kun Li
  • Rick Cooper
  • Ben Van Vliet

Abstract

High-frequency trading dominates trading in financial markets. How it affects the low-frequency trading, however, is still unclear. Using NASDAQ order book data, the authors investigate this question by categorizing orders as either high or low frequency, and examining several measures. They find that high-frequency trading enhances liquidity by increasing the trade frequency and quantity of low-frequency orders. High-frequency trading also reduces the waiting time of low-frequency limit orders and improves their likelihood of execution. The results indicate that high-frequency trading has a liquidity provision effect and improves the execution quality of low-frequency orders.

Suggested Citation

  • Kun Li & Rick Cooper & Ben Van Vliet, 2018. "How Does High-Frequency Trading Affect Low-Frequency Trading?," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 19(2), pages 235-248, April.
    • Handle: RePEc:taf:hbhfxx:v:19:y:2018:i:2:p:235-248
    DOI: 10.1080/15427560.2017.1376669
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    Cited by:

    1. Kun Li, 2019. "Do Circuit Breakers Impede Trading Behavior? A Study In Chinese Financial Market," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(05), pages 1-18, December.
    2. Ke Meng & Shouhao Li, 2021. "The adaptive market hypothesis and high frequency trading," PLOS ONE, Public Library of Science, vol. 16(12), pages 1-19, December.

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