The Impact of High-Frequency Trading on Market Quality: Testimony from Indian Equity Derivatives Market.
Agnihotri, Shalini
The Impact of High-Frequency Trading on Market Quality: Testimony from Indian Equity Derivatives Market. - 5-21 p.
Algorithmic Trading (AT) or High-Frequency Trading (HFT) has lately turned out to be a buzzword in the current trading ecosystem. In developed economies, the bulk of such technology-driven transactions has significantly increased over the years. The Indian market has also been gradually embracing the Algo or High Frequency Trading since 2009 as more and more transactions are being routed through this platform. A technology in financial markets is considered to be good if it helps in increasing the market quality. The present study attempts to investigate the impact of HFT on the market quality. The impact of HFT on market quality is tested via three important pillars of market dynamics, i.e., market liquidity, volatility, and hedging efficiency, using a sample of daily and intra-day prices of National Stock Exchange (NSE) securities during the year 2017. The results highlight that HFT has a significant impact on liquidity enhancement, whereas no conclusive evidence regarding its impact on the volatility has been witnessed. Further, the impact of HFT on hedging efficiency has been observed, though it has not been a strong one to validate it in general. [ABSTRACT FROM AUTHOR]
Stock Excahnge Market Price Effect of technological innovations on financial institutions
The Impact of High-Frequency Trading on Market Quality: Testimony from Indian Equity Derivatives Market. - 5-21 p.
Algorithmic Trading (AT) or High-Frequency Trading (HFT) has lately turned out to be a buzzword in the current trading ecosystem. In developed economies, the bulk of such technology-driven transactions has significantly increased over the years. The Indian market has also been gradually embracing the Algo or High Frequency Trading since 2009 as more and more transactions are being routed through this platform. A technology in financial markets is considered to be good if it helps in increasing the market quality. The present study attempts to investigate the impact of HFT on the market quality. The impact of HFT on market quality is tested via three important pillars of market dynamics, i.e., market liquidity, volatility, and hedging efficiency, using a sample of daily and intra-day prices of National Stock Exchange (NSE) securities during the year 2017. The results highlight that HFT has a significant impact on liquidity enhancement, whereas no conclusive evidence regarding its impact on the volatility has been witnessed. Further, the impact of HFT on hedging efficiency has been observed, though it has not been a strong one to validate it in general. [ABSTRACT FROM AUTHOR]
Stock Excahnge Market Price Effect of technological innovations on financial institutions