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Algorithmic Trading and Information

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Author Info
Terrence Hendershott () (UC Berkeley)
Ryan Riordan () (Karlsruhe Institute of Technology)
Abstract

We examine algorithmic trades (AT) and their role in the price discovery process in the 30 DAX stocks on the Deutsche Boerse. AT liquidity demand represents 52% of volume and AT supplies liquidity on 50% of volume. AT act strategically by monitoring the market for liquidity and deviations of price from fundamental value. AT consume liquidity when it is cheap and supply liquidity when it is expensive. AT contribute more to the efficient price by placing more efficient quotes and AT demanding liquidity to move the prices towards the efficient price.

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File URL: http://www.netinst.org/Hendershott_Riordan_09-08.pdf
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Publisher Info
Paper provided by NET Institute in its series Working Papers with number 09-08.

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Length: 40 pages
Date of creation: Mar 2009
Date of revision: Aug 2009
Handle: RePEc:net:wpaper:0908

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Web page: http://www.NETinst.org/

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Related research
Keywords: Algorithmic trading; information technology; price discovery; market microstructure; price efficiency;

Find related papers by JEL classification:
D4 - Microeconomics - - Market Structure and Pricing
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
G1 - Financial Economics - - General Financial Markets

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This page was last updated on 2009-11-20.

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