The competitive landscape of high-frequency trading firms

Alternative Title

Correlated high-frequency trading

Author

Ekkehart BOEHMER, Singapore Management UniversityFollow
Dan LI, University of Hong Kong
Gideon SAAR, Cornell University

Publication Type

Journal Article

Version

submittedVersion

Publication Date

6-2018

Abstract

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.

Keywords

high frequency trading, algorithmic trading, market making, trading strategies

Discipline

Corporate Finance | Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Review of Financial Studies

Volume

31

Issue

6

First Page

2227

Last Page

2276

ISSN

0893-9454

Identifier

10.1093/rfs/hhx144

Publisher

Oxford University Press

Citation

BOEHMER, Ekkehart; LI, Dan; and SAAR, Gideon. The competitive landscape of high-frequency trading firms. (2018). Review of Financial Studies. 31, (6), 2227-2276.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5328

Copyright Owner and License

Authors

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Additional URL

https://doi.org/10.1093/rfs/hhx144