The Effects of Algorithmic Trading on Security Market Quality

Aitken, Michael; Aspris, Angelo; Foley, Sean; Harris, Frederick H. deB.

doi:10.2139/ssrn.2440671

Cited by 4 publications

(2 citation statements)

References 39 publications

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“…Moreover, we investigate the impact of closing mechanism changes in view of closing price manipulation. Manipulation behavior is detected based on abnormal fluctuations and measured by a price deviation indicator called EOD , the same as in Aitken et al (2015). When the price change of stock i on day t satisfies the following two conditions, expressed by Eqn (6) and Eqn (7), the closing price is classified as being manipulated, EOD i,t = 1; else, 0.…”

Section: Methodsmentioning

confidence: 99%

The impact of closing mechanism changes: evidence from the Shanghai stock market

Wang

Zhen-ming

et al. 2020

CFRI

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PurposeThe purpose of this paper is to empirically examine the impact of closing mechanism changes on market quality, investor trading behavior and market manipulation in the Shanghai stock market.Design/methodology/approachA dummy variable is constructed indicating whether the closing mechanism is call auction or continuous auction. Market quality is measured from aspects of liquidity, volatility and price continuity; investor trading behavior is scaled by order timing and order aggressiveness, and a price deviation indicator is the proxy of manipulation. Using panel regression, this study examines the impact of closing mechanism changes based on intraday transaction data from the Shanghai stock market.FindingsThe conclusions are as follows: First, market quality improves after the closing mechanism is reformed in terms of liquidity, volatility and price continuity. Second, order strategy changes significantly in the closing call market, and investors trade more aggressively in the continuous trading period before closing. Third, the closing call mechanism restrains the closing price manipulation and thus prompts an efficient closing price.Originality/valueThis paper examines the policy effects of closing mechanism changes from aspects of market quality, trading behavior and price manipulation, providing pieces of evidence for trading mechanism design and market supervision in emerging markets.

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Section: Methodsmentioning

confidence: 99%

The impact of closing mechanism changes: evidence from the Shanghai stock market

Wang

Zhen-ming

et al. 2020

CFRI

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“…One could argue that the cost of acquiring basic historical data has decreased, and generally the quality and quantity of data has improved, although given the vast quantity of data being produced, …nding the relevant information from the noisy chatter is challenging (and perhaps the cost of the most relevant and timely data has even increased). Anyway, suppose that 2 = 2 " increases and c decreases in (2). Then 2 should rise and the price system should be more informative.…”

Section: Big Data and Financial Marketsmentioning

confidence: 99%

Implications of high-frequency trading for security markets

Linton¹,

Mahmoodzadeh²

2018

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High frequency trading (HFT) has grown substantially in recent years, due to fast-paced technological developments and their rapid uptake, particularly in equity markets. This paper investigates how HFT could evolve and, by developing a robust understanding of its e¤ects, to identify potential risks and opportunities that it could present in terms of …nancial stability and other market outcomes such as volatility, liquidity, price e¢ ciency and price discovery. Despite commonly held negative perceptions, the available evidence indicates that HFT and algorithmic trading (AT) may have several bene…cial e¤ects on markets. However, they may cause instabilities in …nancial markets in speci…c circumstances. Carefully chosen regulatory measures are needed to address concerns in the shorter term. However, further work is needed to inform policies in the longer term, particularly in view of likely uncertainties and lack of data. This will be vital to support evidence-based regulation in this controversial and rapidly evolving …eld.

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Shackled High Speed Traders? Latency Reduction and Short Sale Bans

2016

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We examine the effects of two juxtaposed events-regulatory short sale bans and exchange efforts to facilitate high-frequency trading (HFT)-on multiple dimensions of market quality. Between 2011 and 2013, the Spanish Stock Exchange (SSE) launched a smart trading platform (SIBE-Smart) and introduced colocation facilities to attract HFT. During this time two short sale bans were imposed on the SSE. Comparing the market before and after these events, we find that while SIBE-Smart attracts some HFT, colocation does not. However, following both of these events, liquidity and price efficiency decline. Colocation, implemented during the second ban, is accompanied by an across-the-board deterioration in market quality. Strikingly, SIBE-Smart, which precedes a ban, also brings significant reductions in market quality. These results are in contrast to existing studies that show increased HFT resulting from technological inducements. We conclude that the beneficial effects of HFT on liquidity and price efficiency are negated in the presence of regulatory restrictions on trading.

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The Effects of Algorithmic Trading on Security Market Quality

Cited by 4 publications

References 39 publications

The impact of closing mechanism changes: evidence from the Shanghai stock market

The impact of closing mechanism changes: evidence from the Shanghai stock market

Implications of high-frequency trading for security markets

Shackled High Speed Traders? Latency Reduction and Short Sale Bans

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