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- Title
A DYSFUNCTIONAL ROLE OF HIGH FREQUENCY TRADING IN ELECTRONIC MARKETS.
- Authors
JARROW, ROBERT A.; PROTTER, PHILIP
- Abstract
This paper shows that high frequency trading may play a dysfunctional role in financial markets. Contrary to arbitrageurs who make financial markets more efficient by taking advantage of and thereby eliminating mispricings, high frequency traders can create a mispricing that they unknowingly exploit to the disadvantage of ordinary investors. This mispricing is generated by the collective and independent actions of high frequency traders, coordinated via the observation of a common signal.
- Subjects
HIGH-frequency trading (Securities); ELECTRONIC markets; FINANCIAL markets; ARBITRAGE; ALGORITHMIC trading (Securities); ELECTRONIC trading of securities; PRICES of securities
- Publication
International Journal of Theoretical & Applied Finance, 2012, Vol 15, Issue 3, p1250022-1
- ISSN
0219-0249
- Publication type
Article
- DOI
10.1142/S0219024912500227