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The Economics of High-Frequency Trading: Taking Stock

Author

Listed:
  • Albert J. Menkveld

    (Department of Finance, Vrije Universiteit Amsterdam, Amsterdam 1081 HV, Netherlands
    Tinbergen Institute Amsterdam, Amsterdam 1082 MS, Netherlands)

Abstract

I review the recent high-frequency trader (HFT) literature to single out the economic channels by which HFTs affect market quality. I first group the various theoretical studies according to common denominators and discuss the economic costs and benefits they identify. For each group, I then review the empirical literature that speaks to either the models’ assumptions or their predictions. This enables me to come to a data-weighted judgement on the economic value of HFTs.

Suggested Citation

  • Albert J. Menkveld, 2016. "The Economics of High-Frequency Trading: Taking Stock," Annual Review of Financial Economics, Annual Reviews, vol. 8(1), pages 1-24, October.
    • Handle: RePEc:anr:refeco:v:8:y:2016:p:1-24
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    File URL: http://www.annualreviews.org/doi/10.1146/annurev-financial-121415-033010
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    More about this item

    Keywords

    high-frequency trading; electronic markets; microstructure;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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