Review of Financial Studies Vol. 31 No. 6 2018

The Competitive Landscape of High-Frequency Trading Firms

Ekkehart Boehmer¹; Dan Li²; Gideon Saar³

¹ Lee Kong Chian School of Business, Singapore Management University , · ² Faculty of Business and Economics, University of Hong Kong · ³ Samuel Curtis Johnson Graduate School of Management, Cornell University

Abstract

We examine product differentiation in the high-frequency trading (HFT) industry, where the “products” are secretive proprietary trading strategies. We demonstrate how principal component analysis can be used to detect underlying strategies common to multiple HFT firms and show that there are three product categories with distinct attributes. We study how HFT competition in each product category affects the market environment and present evidence that indicates how it influences the short-horizon volatility of stocks as well as the viability of trading venues. Received October 10, 2016; editorial decision September 30, 2017 by Editor Itay Goldstein.

DOI

10.1093/rfs/hhx144

Volume

31

Issue

6

Pages

2227-2276

Language

en

Sources

bibtex:phds-export.bib crossref openalex

Cite

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