Journal of Futures Markets, 43, 1126– 1160. https://doi.org/10.1002/fut.22404
- We use rich regulatory data on intraday transactions and end-of-day positions of traders to examine how participation of high-frequency traders (HFTs) affects market quality.
- Panel estimation evidence shows that greater participation by HFTs is strongly associated with improvements in market quality, whereas higher rates of aggressive, directional trading produce an adverse, partially offsetting effect.
- While futures contracts are sensitive to market uncertainty, as measured by the VIX, they are even more sensitive to own price volatility.
- We take advantage of the 2015 change in CME's daily settlement methodology for agricultural commodities to address potential endogeneity using a fixed-effects difference-in-difference setup.
- Our results are robust to relying on alternative estimation techniques, using overly conservative (clustered) standard errors, modeling various forms of cross-sectional and temporal dependence, as well as studying each market separately.
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