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Algorithmic Trading and Information

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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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  • Terrence Hendershott & Ryan Riordan, 2009. "Algorithmic Trading and Information," Working Papers 09-08, NET Institute, revised Aug 2009.
    • Handle: RePEc:net:wpaper:0908
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    References listed on IDEAS

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    More about this item

    Keywords

    Algorithmic trading; information technology; price discovery; market microstructure; price efficiency;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets

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