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High-frequency trading: a literature review

Author

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  • Gianluca Piero Maria Virgilio

    (Universidad Católica Sedes Sapientiae)

Abstract

The relatively recent phenomenon of high-frequency trading has had a profound impact on the micro-structure of financial markets. Several authors hailed it as a provider of liquidity and a mechanism for controlling volatility, two highly welcome features, especially beneficial to retail traders, whereas other authors view the situation generated by algorithmic trading as damaging for both small and institutional traders, and the orderly functioning of the markets. This paper analyzes the impact of high-frequency trading in respect of the main parameters affecting market quality: volatility, transaction costs, liquidity, price discovery, penalization of slower traders, and impact on sudden financial crises, the notorious flash crashes. As often happens within the financial community, different views stand to each other and no conclusive agreement on the value of most parameters has been reached as yet. A section on the apparently falling profits of high-frequency traders, as denounced in recent times, completes the review.

Suggested Citation

  • Gianluca Piero Maria Virgilio, 2019. "High-frequency trading: a literature review," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 33(2), pages 183-208, June.
    • Handle: RePEc:kap:fmktpm:v:33:y:2019:i:2:d:10.1007_s11408-019-00331-6
    DOI: 10.1007/s11408-019-00331-6
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    References listed on IDEAS

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    Cited by:

    1. Sandra Ferreruela & Daniel Martín, 2022. "Market Quality and Short-Selling Ban during the COVID-19 Pandemic: A High-Frequency Data Approach," JRFM, MDPI, vol. 15(7), pages 1-29, July.

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    More about this item

    Keywords

    High-frequency trading; Volatility; Transaction costs; Liquidity; Bid-ask spread; Financial crises;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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