High frequency trading and comovement in financial markets

Malceniece, L; Malcenieks, K; Putniņš, TJ

High frequency trading and comovement in financial markets

Malceniece, L Malcenieks, K Putniņš, TJ

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Publication Type:: Journal Article
Citation:: Journal of Financial Economics, 2019, 134 (2), pp. 381 - 399
Issue Date:: 2019-11-01

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Field	Value	Language
dc.contributor.author	Malceniece, L	en_US
dc.contributor.author	Malcenieks, K	en_US
dc.contributor.author	Putniņš, TJ https://orcid.org/0000-0001-5731-499X	en_US
dc.date.available	2020-05-25T19:22:26Z
dc.date.issued	2019-11-01	en_US
dc.identifier.citation	Journal of Financial Economics, 2019, 134 (2), pp. 381 - 399	en_US
dc.identifier.issn	0304-405X	en_US
dc.identifier.uri	http://hdl.handle.net/10453/123150
dc.description.abstract	© 2019 Elsevier B.V. Using the staggered entry of Chi-X in 12 European equity markets as a source of exogenous variation in high frequency trading (HFT), we find that HFT causes significant increases in comovement in returns and in liquidity. About one-third of the increase in return comovement is due to faster diffusion of market-wide information. We attribute the remaining two-thirds to correlated trading strategies of HFTs. The increase in liquidity comovement is consistent with HFT liquidity providers being better able to monitor other stocks and adjust their liquidity provision accordingly. Our findings suggest a channel by which HFT impacts the cost of capital.	en_US
dc.relation	http://purl.org/au-research/grants/arc/DE150101889
dc.relation.ispartof	Journal of Financial Economics	en_US
dc.relation.isbasedon	10.1016/j.jfineco.2018.02.015	en_US
dc.subject.classification	Finance	en_US
dc.title	High frequency trading and comovement in financial markets	en_US
dc.type	Journal Article
utslib.citation.volume	2	en_US
utslib.citation.volume	134	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	1606 Political Science	en_US
utslib.for	1402 Applied Economics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
utslib.copyright.status	open_access
pubs.issue	2	en_US
pubs.publication-status	Published	en_US
pubs.volume	134	en_US

Abstract:

© 2019 Elsevier B.V. Using the staggered entry of Chi-X in 12 European equity markets as a source of exogenous variation in high frequency trading (HFT), we find that HFT causes significant increases in comovement in returns and in liquidity. About one-third of the increase in return comovement is due to faster diffusion of market-wide information. We attribute the remaining two-thirds to correlated trading strategies of HFTs. The increase in liquidity comovement is consistent with HFT liquidity providers being better able to monitor other stocks and adjust their liquidity provision accordingly. Our findings suggest a channel by which HFT impacts the cost of capital.

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http://hdl.handle.net/10453/123150