We examine product differentiation in the high-frequency trading (HFT) industry, where the “products” are secretive proprietary trading strategies. We demonstrate how principal component analysis can be used to detect underlying strategies that are common to multiple HFT firms, and show that there are three product categories with distinct attributes. We study how HFT competition in each product category impacts the market environment, presenting evidence that indicates how it influences the short-horizon volatility of stocks as well as the viability of trading venues.
high frequency trading, algorithmic trading, market making, trading strategies
Corporate Finance | Finance and Financial Management
BOEHMER, Ekkehart; LI, Dan; and SAAR, Gideon.
Correlated high-frequency trading. (2015). 1-60. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/5328
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