Interactions among high-frequency traders

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 20 February 2015

Working Paper No. 523
By Evangelos Benos, James Brugler, Erik Hjalmarsson and Filip Zikes 

Using unique transactions data for individual high-frequency trading (HFT) firms in the UK equity market, we examine if the trading activity of individual HFT firms is contemporaneously and dynamically correlated with each other, and what impact this has on price efficiency. We find that HFT order flow exhibits significantly higher commonality than the order flow of a control group of investment banks, both within and across stocks. However, intraday HFT order flow commonality is associated with a permanent price impact, suggesting that commonality in HFT activity is information-based and so does not generally contribute to undue price pressure and price dislocations.

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