scholarly journals The Mysterious Ethics of High-Frequency Trading

2016 ◽  
Vol 26 (1) ◽  
pp. 1-22 ◽  
Author(s):  
Ricky Cooper ◽  
Michael Davis ◽  
Ben Van Vliet
Keyword(s):  
Moral Hazard ◽  
Financial Markets ◽  
Information Asymmetry ◽  
High Frequency ◽  
Price Discovery ◽  
Recent Trend ◽  
Trading Strategies ◽  
High Frequency Trading

ABSTRACT:The ethics of high frequency trading are obscure, due in part to the complexity of the practice. This article contributes to the existing literature of ethics in financial markets by examining a recent trend in regulation in high frequency trading, the prohibition of deception. We argue that in the financial markets almost any regulation, other than the most basic, tends to create a moral hazard and increase information asymmetry. Since the market’s job is, at least in part, price discovery, we argue that simplicity of regulation and restraint in regulation are virtues to a greater extent than in other areas of finance. This article proposes criteria for determining which high-frequency trading strategies should be regulated.

High-Frequency Financial Econometrics

2014 ◽  
Author(s):  
Yacine Aït-Sahalia ◽  
Jean Jacod
Keyword(s):  
High Frequency ◽  
Practical Importance ◽  
Financial Econometrics ◽  
Trading Strategies ◽  
Financial Data ◽  
Jump Processes ◽  
High Frequency Trading ◽  
Microstructure Noise ◽  
Econometric Methods ◽  
Mathematical Foundations

High-frequency trading is an algorithm-based computerized trading practice that allows firms to trade stocks in milliseconds. Over the last fifteen years, the use of statistical and econometric methods for analyzing high-frequency financial data has grown exponentially. This growth has been driven by the increasing availability of such data, the technological advancements that make high-frequency trading strategies possible, and the need of practitioners to analyze these data. This comprehensive book introduces readers to these emerging methods and tools of analysis. The book covers the mathematical foundations of stochastic processes, describes the primary characteristics of high-frequency financial data, and presents the asymptotic concepts that their analysis relies on. It also deals with estimation of the volatility portion of the model, including methods that are robust to market microstructure noise, and address estimation and testing questions involving the jump part of the model. As the book demonstrates, the practical importance and relevance of jumps in financial data are universally recognized, but only recently have econometric methods become available to rigorously analyze jump processes. The book approaches high-frequency econometrics with a distinct focus on the financial side of matters while maintaining technical rigor, which makes this book invaluable to researchers and practitioners alike.

scholarly journals What is a 'Real' Transaction? Infrastructures, relations and Spoofing in High-Frequency Trading

2016 ◽  
Author(s):  
Juan Pablo Pardo Guerra
Keyword(s):  
Financial Markets ◽  
High Frequency ◽  
High Frequency Trading ◽  
Market Behavior ◽  
Digital Platforms ◽  
Market Participants

Although an old and rare practice, spoofing has re-emerged as a subject ofintense debate within modern financial markets. An activity entailing thefraudulent creation of orders to buy and sell securities with the purposeof manipulating the market, spoofing highlights the multiple and complexmoral valences of contemporary, automated, finance. In this paper, I studyspoofing as an opportunity to understand markets and their relations ofexchange. In particular, by extending Weberian metaphors of markets asmoral and organizational communities, I examine how the courts and marketparticipants distinguish the ‘false’ transactions of spoofing from the‘real’ exchanges of 'normal' market behavior. Combining Marilyn Strathern’stheoretical discussion of the anthropological relation with recentliteratures on infrastructures and markets, I argue that the perceivedreality of transactions is a product of how novel forms of economicknowledge are able to make sense of ‘taken for granted’ behavioral patternswithin digital platforms of market action. The intent that constitutes‘real’ trades is therefore a product of how market participants, economicexperts and the courts interpret the operational underbelly of markets andthe relations that they produce.

scholarly journals High frequency trading and comovement in financial markets

2019 ◽  
Vol 134 (2) ◽  
pp. 381-399 ◽  
Author(s):  
Laura Malceniece ◽  
Kārlis Malcenieks ◽  
Tālis J. Putniņš
Keyword(s):  
Financial Markets ◽  
High Frequency ◽  
High Frequency Trading

The Regulatory, Technology and Market ‘Dark Arts Trilogy’ of High Frequency Trading: A Research Agenda

2017 ◽  
Vol 32 (2) ◽  
pp. 111-126 ◽  
Author(s):  
Wendy L. Currie ◽  
Jonathan J. M. Seddon
Keyword(s):  
Information Systems ◽  
Financial Markets ◽  
Empirical Data ◽  
High Frequency ◽  
Research Agenda ◽  
High Frequency Trading ◽  
Algorithmic Trading ◽  
Flash Crash ◽  
Financial Trading ◽  
Dow Jones Industrial Average

Computerization has transformed financial markets with high frequency trading displacing human activity with proprietary algorithms to lower latency, reduce intermediary costs, enhance liquidity and increase transaction speed. Following the “Flash Crash” of 2010 which saw the Dow Jones Industrial Average plunge 1000 points within minutes, high frequency trading has come under the radar of multi-jurisdictional regulators. Combining a review of the extant literature on high frequency trading with empirical data from interviews with financial traders, computer experts and regulators, we develop concepts of regulatory adaptation, technology asymmetry and market ambiguity to illustrate the ‘dark art’ of high frequency trading. Findings show high frequency trading is a multi-faceted, complex and secretive practice. It is implicated in market events, but correlation does not imply causation, as isolating causal mechanisms from interconnected automated financial trading is highly challenging for regulators who seek to monitor algorithmic trading across multiple jurisdictions. This article provides information systems researchers with a set of conceptual tools for analysing high frequency trading.

High-Frequency Trading and Conflict in the Financial Markets

2017 ◽  
Vol 32 (3) ◽  
pp. 270-282 ◽  
Author(s):  
Ricky Cooper ◽  
Jonathan Seddon ◽  
Ben Van Vliet
Keyword(s):  
Financial Markets ◽  
High Frequency ◽  
High Frequency Trading ◽  
Market Makers ◽  
Market Participants ◽  
Software Vendor ◽  
Traditional Market ◽  
Recent Developments ◽  
The Way

The last few decades has seen an ever-increasing growth in the way activities are productized and associated with a financial cost. This phenomenon, termed financialization, spans all areas including government, finance, health and manufacturing. Recent developments within finance over that past decade have radically altered the way trading occurs. This paper analyses high-frequency trading (HFT) as a necessary component of the infrastructure that makes financialization possible. Through interviews with HFT firms, a software vendor, regulators and banks, the effects of HFT on market efficiency, and its impact on costs to long-term investors are explored. This paper contributes to the literature by exploring the conflict that exists between HFT and traditional market makers in today's fragmented markets. This paper argues that society should be unconcerned with this conflict and should instead focus on the effects these participants have on the long-term investors, for whom the markets ultimately exist. In order to facilitate the best outcomes, regulation should be simple, aimed at keeping participants’ behavior stable, and the interactions among them transparent and straightforward. Financialization and HFT are inextricably linked, and society is best served by ensuring that the creative energy of these market participants is directed on providing liquidity and removing inefficiencies.

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