Risk and Return in High-Frequency Trading

By Matthew Baron, Jonathan Brogaard, Björn Hagströmer, Andrei A. Kirilenko. Journal of Financial and Quantitative Analysis, 2018

167 citations recorded by the source corpus.

We study performance and competition among firms engaging in high-frequency trading (HFT). We construct measures of latency and find that differences in relative latency account for large differences in HFT firms’ trading performance. HFT firms that improve their latency rank due to colocation upgrades see improved trading performance. The stronger performance associated with speed comes through both the short-lived information channel and the risk management channel, and speed is useful for various strategies, including market making and cross-market arbitrage. We find empirical support for many predictions regarding relative latency competition.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/41aeed6467abf977898e43388597d9ede713d6b8

Citations in the corpus

• Quantifying the High-Frequency Trading "Arms Race" (2021, unknown): “Previous studies that document heterogeneity across HFT firms with respect to their taking and liquidity provision behavior include Benos and Sagade (2016) and Baron et al. (2019).”