The competitive landscape of high-frequency trading firms

The competitive landscape of high-frequency trading firms

We examine product differentiation in the high-frequency trading (HFT) industry, where the “products” are secretive proprietary trading strategies. We demonstrate how principal component analysis can be used to detect underlying strategies that are common to multiple HFT firms, and show that there a...

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Bibliographic Details
Main Authors: BOEHMER, Ekkehart, LI, Dan, SAAR, Gideon
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2018
Subjects:
high frequency trading
algorithmic trading
market making
trading strategies
Corporate Finance
Finance and Financial Management
Portfolio and Security Analysis
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/5328
https://ink.library.smu.edu.sg/context/lkcsb_research/article/6327/viewcontent/High_frequency_trading_pp.pdf
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Institution: Singapore Management University
Language: English
Description
Summary:We examine product differentiation in the high-frequency trading (HFT) industry, where the “products” are secretive proprietary trading strategies. We demonstrate how principal component analysis can be used to detect underlying strategies that are common to multiple HFT firms, and show that there are three product categories with distinct attributes. We study how HFT competition in each product category impacts the market environment, presenting evidence that indicates how it influences the short-horizon volatility of stocks as well as the viability of trading venues.

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