Date Author Names Title
Coughlan, John, Orlov, Alexei

High-Frequency Trading and Market Quality: Evidence from Account-Level Futures Data

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.