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High-Frequency Trading Competition

Author

Listed:
  • Jonathan Brogaard
  • Corey Garriott
  • Anna Pomeranets

Abstract

We analyze trading dynamics as successive high-frequency trading (HFT) firms begin to trade stocks in an equity market. Entrants compete with incumbents for volume, and there is crowding out. Earlier entry is associated with larger effects. After Passive HFT entry, incumbent spreads tighten. After Aggressive HFT entry, incumbent order flow loses informedness. Revenue datasuggest entry reduces the profitability of HFT activity. The results show that part of the value of HFT comes from its competitiveness.

Suggested Citation

  • Jonathan Brogaard & Corey Garriott & Anna Pomeranets, 2014. "High-Frequency Trading Competition," Staff Working Papers 14-19, Bank of Canada.
    • Handle: RePEc:bca:bocawp:14-19
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Financial markets; Market structure and pricing;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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