High‐Frequency Trading around Large Institutional Orders

By V. V. Kervel, Albert J. Menkveld. Journal of Finance, 2019

188 citations recorded by the source corpus.

Liquidity suppliers lean against the wind. We analyze whether high-frequency traders (HFTs) lean against large institutional orders that execute through a series of child orders. The alternative is HFTs trading "with the wind," that is, in the same direction. We find that HFTs initially lean against these orders but eventually change direction and take position in the same direction for the most informed institutional orders. Our empirical findings are consistent with investors trading strategically on their information. When deciding trade intensity, they seem to trade off higher speculative profit against higher risk of detection by HFTs and being preyed on.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/bd314d0b3780139315ef667021156a7f18191946

Citations in the corpus

• Zero-Commission Individual Investors, High Frequency Traders, and Stock Market Quality (2021, unknown): “In particular, van Kervel and Menkveld (2019) find evidence that HFTs engage in predatory trading around large institutional orders, whereas Korajczyk and Murphy (2019) argue that HFTs are associated with lower transaction costs for small, uninformed trades.”
• High-Frequency Trading and Extreme Price Movements (2018, unknown): “Yang and Zhu (2015) propose and van Kervel and Menkveld (2015) show that HFTs are able to recognize trading patterns after a period of time and switch from supplying liquidity to demanding it.”