Algorithmic trading and market quality: International evidence
We study the effect of algorithmic trading (AT) on market quality between 2001 and 2011 in 42 equity markets around the world. We use an exchange colocation service that increases AT as an exogenous instrument to draw causal inferences about AT on market quality. On average, AT improves liquidity an...
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sg-smu-ink.lkcsb_research-76842022-04-18T07:00:39Z Algorithmic trading and market quality: International evidence BOEHMER, Ekkehart FONG, Kingsley WU, Juan Julie We study the effect of algorithmic trading (AT) on market quality between 2001 and 2011 in 42 equity markets around the world. We use an exchange colocation service that increases AT as an exogenous instrument to draw causal inferences about AT on market quality. On average, AT improves liquidity and informational efficiency but increases short-term volatility. Importantly, AT also lowers execution shortfalls for buy-side institutional investors. Our results are surprisingly consistent across markets and thus across a wide range of AT environments. We further document that the beneficial effect of AT is stronger in large stocks than in small stocks. 2020-10-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/6685 info:doi/10.1017/S0022109020000782 https://ink.library.smu.edu.sg/context/lkcsb_research/article/7684/viewcontent/AT_Sep2019_sv.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Algorithmic trading market quality high frequency trading buy-side institution execution costs Corporate Finance Finance and Financial Management |
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Algorithmic trading market quality high frequency trading buy-side institution execution costs Corporate Finance Finance and Financial Management BOEHMER, Ekkehart FONG, Kingsley WU, Juan Julie Algorithmic trading and market quality: International evidence |
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We study the effect of algorithmic trading (AT) on market quality between 2001 and 2011 in 42 equity markets around the world. We use an exchange colocation service that increases AT as an exogenous instrument to draw causal inferences about AT on market quality. On average, AT improves liquidity and informational efficiency but increases short-term volatility. Importantly, AT also lowers execution shortfalls for buy-side institutional investors. Our results are surprisingly consistent across markets and thus across a wide range of AT environments. We further document that the beneficial effect of AT is stronger in large stocks than in small stocks. |
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text |
author |
BOEHMER, Ekkehart FONG, Kingsley WU, Juan Julie |
author_facet |
BOEHMER, Ekkehart FONG, Kingsley WU, Juan Julie |
author_sort |
BOEHMER, Ekkehart |
title |
Algorithmic trading and market quality: International evidence |
title_short |
Algorithmic trading and market quality: International evidence |
title_full |
Algorithmic trading and market quality: International evidence |
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Algorithmic trading and market quality: International evidence |
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Algorithmic trading and market quality: International evidence |
title_sort |
algorithmic trading and market quality: international evidence |
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Institutional Knowledge at Singapore Management University |
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2020 |
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https://ink.library.smu.edu.sg/lkcsb_research/6685 https://ink.library.smu.edu.sg/context/lkcsb_research/article/7684/viewcontent/AT_Sep2019_sv.pdf |
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