Survey; High Frequency Trading Makes Markets More Efficient

I’m really loking forward to read the full report on the survey – if I can hold of a copy, of cource. And I’m cerainly curious about who might have sponsored the research. However,  Jonathan Brogaard, a PhD candidate at Northwestern University’s  Kellogg School of Management, have studied high frequency trading in great detail, according to UltraHighFrequencyTrading.com. And he has concluded that high frequency trading only makes the markets more efficient.

“HFTs may dampen intraday volatility. These findings suggest that HFTs’ activities are not detrimental to non-HFTs and that HFT tends to improve market quality.”

Jonathan Brogaard


The survey will be presentet for the high frecuency experts at their workshop in November and December, and the candidate from Northwestern University will provide the attendees with more details on how high-frequency trading works in practice to generate alpha and make the markets more efficient at the same time, the workshop organizer Golden Networking.org says.

Golden Networking is community for business executives, entrepreneurs, investors and diplomats, founded by former McKinsey consultant and Columbia Business School MBA Edgar Perez.

Mr. Brogaard’s research examines the impact of high frequency trading (HFT) on the US equities market.

He has analyzed a “unique dataset” to study the strategies utilized by high frequency traders (HFTs), their profitability, and their relationship with characteristics of the overall market, including liquidity, price discovery, and volatility.

The 26 HFT firms in the dataset participate in 73.7% of all trades.

According to the research, and contrary to what is believed, HFT increases liquidity in the markets.

Improves Market Quality

Jonathan Brogaard have discovered that high frequency trading is an integral part of the price discovery process and price efficiency,.

Here are some other conclutions form the survey’s final report:

  • HFTs tend to follow a price reversal strategy driven by order imbalances.
  • HFTs earn gross trading profits of approximately $2.8 billion annually.
  • HFTs do not seem to systematically engage in a non-HFTs anticipatory trading strategy.
  • HFTs’ strategies are more correlated with each other than are non-HFTs.
  • HFTs’ trading level changes only moderately as volatility increases
  • HFTs add substantially to the price discovery process.
  • HFTs provide the best bid and offer quotes for a significant portion of the trading day and do so strategically so as to avoid informed traders, but provide only one-fourth of the book depth as do non-HFTs.
  • HFTs may dampen intraday volatility. These findings suggest that HFTs’ activities are not detrimental to non-HFTs and that HFT tends to improve market quality.

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