3 ms·
"Although some studies argue otherwise, a number of academic papers study the effects of algorithmic trading and high-frequency trading on volatility in equity
by greatwave1 6y ago
"Although some studies argue otherwise, a number of academic papers study the effects of algorithmic trading and high-frequency trading on volatility in equity markets and find evidence that, under normal market conditions, they reduce short term volatility."
That's interesting, and goes against the conventional wisdom that markets driven by automated, high-frequency trading will be much more volatile. I wonder if HFTs made major changes to avoid another Flash Crash.
- jagged-chisel 6y agoI'm curious about the number of studies and academic papers ("some" vs. "a number")
- thinkloop 6y agoThere's also the caveat: "However, there is some evidence, mostly from the Flash Crash, that in certain instances algorithmic trading and HFTs may exacerbate price movements during periods of high volatility or market stress." Volatile volitility reduction
- pydry 6y ago>That's interesting, and goes against the conventional wisdom that markets driven by automated, high-frequency trading will be much more volatile. Only if you ignore the word "normal". Otherwise it's what people have been saying for years - HFT reduces volatility when the seas are calm and amplifies it when they're choppy.
- smabie 6y agoThe heart of the problem isn't with HFT, it's that an order book isn't reflective of real supply and demand. A human realizes that, while HFT algos sometimes don't. For example, no one is listing buy orders for Apple at $1, even though everyone would love to buy Apple stock for one dollar. A human trader has enough sense to realize that most liquidity in any marketplace is off the order book, and act appropriately. But even so, I don't anyone really believes that HFT creates higher average market volatility. Some freak occurrences have happened, but I'm sure they'll go down over time.
- siemprenocasa 6y agoLower volatility would help the HFTs with price forecasting and operating with more certainty to not wildly swing their portfolios.