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Time to Slow Down for High‐Frequency Trading? Lessons from Artificial Markets

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  • Iryna Veryzhenko
  • Lise Arena
  • Etienne Harb
  • Nathalie Oriol

Abstract

In this paper, we focus on the French cancel order tax implemented on 1 August 2012. We question the effectiveness of the modified tax with no exemptions and we analyze its impact on market quality, measured by liquidity, volatility and efficiency. Additionally, this paper raises the question whether this tax leads to a reduction of high‐frequency trading (HFT) activities and a decline in trading volume. Based on our findings we report that introduction of cancel order tax only slightly reduces HFT activities, but it significantly affects market liquidity, increases market volatility and leads to deteriorating market efficiency. We conclude that it is difficult to dissuade investors from entering into unproductive trades and eliminate negative outputs of HFT (such as price manipulations) through tax, without altering the benefits of HFT like liquidity provision and efficient price discovery.

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  • Iryna Veryzhenko & Lise Arena & Etienne Harb & Nathalie Oriol, 2017. "Time to Slow Down for High‐Frequency Trading? Lessons from Artificial Markets," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 24(2-3), pages 73-79, April.
    • Handle: RePEc:wly:isacfm:v:24:y:2017:i:2-3:p:73-79
    DOI: 10.1002/isaf.1407
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    References listed on IDEAS

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    Cited by:

    1. Monira Essa Aloud, 2020. "The role of attribute selection in Deep ANNs learning framework for high‐frequency financial trading," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 27(2), pages 43-54, April.
    2. Xinhui Yang & Jie Zhang & Qing Ye, 2020. "Tick size and market quality: Simulations based on agent‐based artificial stock markets," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 27(3), pages 125-141, July.
    3. Iryna Veryzhenko, 2021. "Who gains and who loses on stock markets? Risk preferences and timing matter," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 28(2), pages 143-155, April.
    4. Sébastien Duchêne & Nathalie Oriol, 2018. "Too fast, Too furious? Une réflexion historique et contemporaine sur l'emballement des marchés financiers," Post-Print halshs-01860721, HAL.
    5. Javier Bajo & Philippe Mathieu & María José Escalona, 2017. "Multi‐agent technologies in economics," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 24(2-3), pages 59-61, April.

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