۱- Introduction

۲- Data and estimation strategy

۳- Results

۴- Conclusion

References

Abstract

This study examines the role of high frequency trading in price discovery and efficiency in the FTSE100 index tick changes. We find that there is no random walk when investors extract information at a millisecond to a second.

Introduction

In the last 30 years fast paced technological advancements and their rapid uptake in equity markets have markedly increased the importance of high frequency trading (HFT). Sahalia and Saglam (2014) show that HFT represents between 40 and 70% of the trading volume in the US and slightly less in the Canadian, European and Australian markets. As HFT may prevent all market participants from having equal access to information, there have been ongoing debates regarding its impact on making stock markets inefficient.1 Theoretical arguments and empirical evidence indicate many supposed benefits of HFT and algorithmic trading (AT), such as decrease in bid ask spread and transaction cost for equity investors (Jones, 2013; O’Hara, 2015), price discovery and efficiency (Hendershott, 2012), quality and liquidity Linton and Mahmoodzadeh (2018). In contrast, evidence also shows that HFT might contribute negatively to the development of stock markets; for instance, the May 6, 2010 flash clash and the October 15, 2014 bond market flash. This suggests that HFT may play a role in price instability and market volatility. It is therefore important to have a better understanding of the role of HFT with regard to price discovery and efficiency.