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High-Frequency Trading and the Execution Costs of Institutional Investors

Author

Listed:
  • Michael Goldstein
  • Jonathan Brogaard
  • Terrence Hendershott
  • Stefan Hunt
  • Carla Ysusi

Abstract

This paper studies whether high-frequency trading (HFT) increases the execution costs of institutional investors. We use technology upgrades that lower the latency of the London Stock Exchange to obtain variation in the level of HFT over time. Following upgrades, the level of HFT increases. Around these shocks to HFT institutional traders’ costs remain unchanged. We find no clear evidence that HFT impacts institutional execution costs.

Suggested Citation

  • Michael Goldstein & Jonathan Brogaard & Terrence Hendershott & Stefan Hunt & Carla Ysusi, 2014. "High-Frequency Trading and the Execution Costs of Institutional Investors," The Financial Review, Eastern Finance Association, vol. 49(2), pages 345-369, May.
  • Handle: RePEc:bla:finrev:v:49:y:2014:i:2:p:345-369
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    File URL: http://hdl.handle.net/10.1111/fire.12039
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    1. repec:eee:pacfin:v:45:y:2017:i:c:p:91-102 is not listed on IDEAS
    2. repec:eee:finlet:v:26:y:2018:i:c:p:198-203 is not listed on IDEAS
    3. Upson, James & Van Ness, Robert A., 2017. "Multiple markets, algorithmic trading, and market liquidity," Journal of Financial Markets, Elsevier, vol. 32(C), pages 49-68.
    4. Efstathios Panayi & Gareth Peters, 2015. "Stochastic simulation framework for the Limit Order Book using liquidity motivated agents," Papers 1501.02447, arXiv.org, revised Jan 2015.
    5. Sifat, Imtiaz Mohammad & Mohamad, Azhar, 2015. "Order imbalance and selling aggression under a shorting ban: Evidence from the UK," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 368-379.
    6. Gider, Jasmin & Schmickler, Simon & Westheide, Christian, 2019. "High-frequency trading and price informativeness," SAFE Working Paper Series 248, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    7. repec:eee:corfin:v:52:y:2018:i:c:p:143-167 is not listed on IDEAS
    8. repec:eee:pacfin:v:53:y:2019:i:c:p:186-207 is not listed on IDEAS
    9. Benos, Evangelos & Sagade, Satchit, 2016. "Price discovery and the cross-section of high-frequency trading," Journal of Financial Markets, Elsevier, vol. 30(C), pages 54-77.
    10. Manahov, Viktor, 2016. "A note on the relationship between high-frequency trading and latency arbitrage," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 281-296.
    11. John Cotter & Niall McGeever, 2018. "Are equity market anomalies disappearing? Evidence from the U.K," Working Papers 201804, Geary Institute, University College Dublin.
    12. Mestel, Roland & Murg, Michael & Theissen, Erik, 2018. "Algorithmic trading and liquidity: Long term evidence from Austria," Finance Research Letters, Elsevier, vol. 26(C), pages 198-203.
    13. repec:eee:finmar:v:42:y:2019:i:c:p:1-28 is not listed on IDEAS
    14. repec:kap:compec:v:54:y:2019:i:2:d:10.1007_s10614-018-9851-4 is not listed on IDEAS

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