Computerization of the Equity, Foreign Exchange, Derivatives, and Fixed‐Income Markets

Abstract

We survey empirical studies on the development and effects of increased computerization across equity, foreign exchange, derivatives, and fixed‐income markets. While the changes in the trading process due to computerization in less liquid markets such as the corporate bond market have been modest, there have been dramatic changes in certain derivatives markets, foreign exchange, and particularly in equity markets. In many instances, previous research has found positive effects of computerization on measures of market quality, but our survey highlights that human intermediation is still prominent and beneficial in certain areas.

The Economics of High-Frequency Trading: Taking Stock

“…The services that brokers, dealers, and specialists formerly provided are now largely coded into computer algorithms operating at superhuman speed. Securities trading in all asset classes either has migrated completely to electronic markets (e.g., US equities) or is in the process of migrating ( Johnson 2010, Cardella et al 2014.…”

Computerized and High‐Frequency Trading

“…One interesting consequence of the recent contraction of high‐speed U.S. equity trading, noted in Cardella, Hao, Kalcheva and Ma (), is that HFT firms have begun to increase trading in other financial assets, such as international stocks and currencies. Popper () reports that high‐speed firms accounted for approximately 12% of all currency trading in 2010, but for 2012, Celent estimates this share to be around 28%.…”

Do High Frequency Traders Care about Earnings Announcements? An Analysis of Trading Activity before, during, and after Regular Trading Hours

“…Brogaard (2010) reports an HFT participation rate of 73.7% for a sample of NASDAQ stocks while Cardela et al (2014) document high frequency trading in foreign exchange markets and derivative markets.…”