Remember me

Register  |   Lost password?

The Trading Mesh


High-Frequency Trading and the Execution Costs of Institutional Investors (pdf)

Thu, 24 Jan 2013 06:21:23 GMT           

H/T @CarlCarrie on Twitter

Jonathan Brogaard, Terrence Hendershott, Stefan Hunt, Torben Latza, Lucas Pedace, Carla Ysusi

FSA OCCASIONAL PAPERS IN FINANCIAL REGULATION

While some institutional investors are concerned that high frequency trading increases the cost of investing, others suggest that high frequency trading has been beneficial, for example by creating more accurate and faster pricing of securities and adding liquidity to the market. Understanding the facts, and so which of these viewpoints is closer to reality, is a much-needed input to policy formation. The FCA will remain open and interested in creating and compiling the evidence.

Martin Wheatley, CEO-Designate, Financial Conduct Authority

Abstract

This paper studies whether high-frequency trading (HFT) increases the execution costs of institutional investors. We use technology upgrades that lower the latency of the London Stock Exchange to obtain variation in the level of HFT over time. Following upgrades, the level of HFT increases. Around these shocks to HFT, as far as can be measured, institutional traders’ execution costs remain unchanged. Thus, we find no evidence that these increases in HFT activity impacted institutional execution costs.

msllibrsrch, msllibrsrchfinmar, msllibrsrchtranscosts, msllibrsrchhft

, , , , , , , , , , , , , , , , , , ,