Portal de Periódicos da CAPES

Low-latency trading

2013; Elsevier BV; Volume: 16; Issue: 4 Linguagem: Inglês

10.1016/j.finmar.2013.05.003

1878-576X

Joel Hasbrouck, Gideon Saar,

Financial Risk and Volatility Modeling

We define low-latency activity as strategies that respond to market events in the millisecond environment, the hallmark of proprietary trading by high-frequency traders though it could include other algorithmic activity as well. We propose a new measure of low-latency activity to investigate the impact of high-frequency trading on the market environment. Our measure is highly correlated with NASDAQ-constructed estimates of high-frequency trading, but it can be computed from widely-available message data. We use this measure to study how low-latency activity affects market quality both during normal market conditions and during a period of declining prices and heightened economic uncertainty. Our analysis suggests that increased low-latency activity improves traditional market quality measures—decreasing spreads, increasing displayed depth in the limit order book, and lowering short-term volatility. Our findings suggest that given the current market structure for U.S. equities, increased low-latency activity need not work to the detriment of long-term investors.