Skip to main content

Interactions among High-Frequency Traders

  • Evangelos Benos, James Brugler, Erik Hjalmarsson and Filip Zikes

Using unique transactions data for individual high-frequency trading (HFT) firms in the U.K. equity market, we examine the extent to which the trading activity of individual HFT firms is correlated with each other and the impact on price efficiency. We find that HFT order flow, net positions, and total volume exhibit significantly higher commonality than those of a comparison group of investment banks. However, intraday HFT order flow commonality is associated with a permanent price impact, suggesting that commonality in HFT activity is information based and so does not generally contribute to undue price pressure and price dislocations.

Corresponding author
* Benos,, Financial Markets Infrastructure Directorate, Bank of England; Brugler,, Faculty of Business and Economics, University of Melbourne; Hjalmarsson (corresponding author),, Department of Economics and the Centre for Finance, University of Gothenburg; and Zikes,, Division of Financial Stability, Federal Reserve Board.
Hide All

We are grateful to Satchit Sagade for his help in cleaning and processing the data. The paper has greatly benefited from the advice of Hendrik Bessembinder (the editor) and Allen Carrion (the referee). Other helpful comments were provided by Monica Billio, Dobrislav Dobrev, Björn Hagströmer, Edwin Schooling Latter, Nick Vause, Graham Young, and seminar participants at the Bank of England, the Bank of Greece, Copenhagen Business School, the Federal Reserve Board, the U.K. Financial Conduct Authority, University of Piraeus, University of York, the 2015 conference on the Development of Securities Markets: Trends, Risks and Policies at Bocconi University, the 2015 conference of the International Association of Applied Econometrics, and the 2014 Ioannina Meeting on Applied Economics and Finance. The views in this paper are solely the responsibility of the authors and should not be interpreted as representing the views of the Bank of England or any of its committees, or the U.K. Financial Conduct Authority, or the Board of Governors of the Federal Reserve System or any other person associated with the Federal Reserve System. Hjalmarsson gratefully acknowledges financial support from the Swedish Research Council (Vetenskapsrådet) under Grant 2014-01429.

Hide All
Anand, A., and Venkataraman, K.. “Market Conditions, Fragility, and the Economics of Market Making.” Journal of Financial Economics, 121 (2016), 327349.
Baron, M.; Brogaard, J.; and Kirilenko, A.. “Risk and Return in High-Frequency Trading.” Working Paper, University of Washington (2014).
Benos, E., and Sagade, S.. “Price Discovery and the Cross-Section of High-Frequency Trading.” Journal of Financial Markets, 30 (2016), 5477.
Boehmer, E.; Li, D.; and Saar, G.. “Correlated High-Frequency Trading.” Working Paper, Cornell University (2016).
Brogaard, J.; Garriott, C.; and Pomeranets, A.. “High-Frequency Trading Competition.” Working Paper, Bank of Canada (2014).
Brogaard, J.; Hagströmer, B.; Nordén, L.; and Riordan, R.. “Trading Fast and Slow: Colocation and Liquidity.” Review of Financial Studies, 28 (2015), 34073443.
Brogaard, J.; Hendershott, T.; and Riordan, R.. “High-Frequency Trading and Price Discovery.” Review of Financial Studies, 27 (2014), 22672306.
Carrion, A.Very Fast Money: High-Frequency Trading on the NASDAQ.” Journal of Financial Markets, 16 (2013), 680711.
Carrion, A., and Kolay, M.. “Trade Signing in Fast Markets.” Working Paper, University of Utah (2014).
Chaboud, A.; Chiquoine, B.; Hjalmarsson, E.; and Vega, C.. “Rise of the Machines: Algorithmic Trading in the Foreign Exchange Market.” Journal of Finance, 69 (2014), 20452084.
Chakrabarty, B.; Pascual, R.; and Shkilko, A.. “Evaluating Trade Classification Algorithms: Bulk Volume Classification versus the Tick Rule and the Lee-Ready Algorithm.” Journal of Financial Markets, 25 (2015), 5279.
DeLong, B.; Shleifer, A.; Summers, L.; and Waldmann, R. J.. “Positive Feedback Investment Strategies and Destabilizing Rational Speculation.” Journal of Finance, 45 (1990), 379395.
Dobrev, D., and Schaumburg, E.. “High-Frequency Cross-Market Trading: Model Free Measurement and Applications.” Working Paper, Board of Governors of the Federal Reserve System (2016).
Driscoll, J. C., and Kraay, A. C.. “Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data.” Review of Economics and Statistics, 80 (1998), 549560.
Easley, D.; Lopéz de Prado, M. M.; and O’Hara, M.. “The Volume Clock: Insights into the High-Frequency Paradigm.” Journal of Portfolio Management, 39 (2012), 1929.
Froot, K.; Scharfstein, D.; and Stein, J.. “Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation.” Journal of Finance, 47 (1992), 14611484.
Hagströmer, B., and Nordén, L.. “The Diversity of High-Frequency Traders.” Journal of Financial Markets, 16 (2013), 741770.
Hagströmer, B.; Nordén, L.; and Zhang, D.. “The Aggressiveness of High-Frequency Traders.” Financial Review, 49 (2014), 395419.
Haldane, A.“The Race to Zero.” Speech, International Economic Association 16th World Congress, Beijing. Available at: (2011).
Hall, A. R. Generalized Method of Moments. Oxford, UK: Oxford University Press (2005).
Hendershott, T.; Jones, C.; and Menkveld, A.. “Does Algorithmic Trading Improve Liquidity?Journal of Finance, 66 (2011), 133.
Hendershott, T., and Riordan, R.. “Algorithmic Trading and the Market for Liquidity.” Journal of Financial and Quantitative Analysis, 48 (2013), 10011024.
Hirschey, N.“Do High-Frequency Traders Anticipate Buying and Selling Pressure?” Working Paper, London Business School (2016).
Holden, C. W., and Jacobsen, S.. “Liquidity Measurement Problems in Fast Competitive Markets: Expensive and Cheap Solutions.” Journal of Finance, 69 (2014), 17471885.
Jarrow, R., and Protter, P.. “A Dysfunctional Role of High Frequency Trading in Electronic Markets.” International Journal of Theoretical and Applied Finance, 15 (2012), 1250022-1–1250022-15.
Khandani, A., and Lo, A. W.. “What Happened to the Quants in August 2007? Evidence from Factors and Transactions Data.” Journal of Financial Markets, 14 (2011), 146.
Kirilenko, A.; Kyle, A.; Samadi, M.; and Tuzun, T.. “The Flash Crash: High-Frequency Trading in an Electronic Market.” Journal of Finance, forthcoming (2017).
Kondor, P.Risk in Dynamic Arbitrage: Price Effects of Convergence Trading.” Journal of Finance, 64 (2009), 631655.
Korajczyk, R. A., and Murphy, D.. “High-Frequency Market Making to Large Institutional Trades.” Working Paper, Northwestern University (2016).
Kozhan, R., and Tham, W. W.. “Execution Risk in High-Frequency Arbitrage.” Management Science, 58 (2012), 21312149.
Kreiss, J. P., and Lahiri, S. N.. “Bootstrap Methods for Time Series.” In Handbook of Statistics, Vol. 30, Rao, T. S., Rao, S. S., and Rao, C. R., eds. Oxford, UK: Elsevier North-Holland (2012).
Kyle, A.Continuous Auctions and Insider Trading.” Econometrica, 53 (1985), 13151336.
Lakonishok, J.; Shleifer, A.; and Vishny, R.. “The Impact of Institutional Trading on Stock Prices.” Journal of Financial Economics, 32 (1992), 2343.
Lee, M. C., and Ready, M.. “Inferring Trade Direction from Intraday Data.” Journal of Finance, 46 (1991), 733746.
Martinez, V., and Rosu, I.. “High-Frequency Traders, News and Volatility.” Working Paper, HEC Paris (2013).
Oehmke, M.“Gradual Arbitrage.” Working Paper, Columbia University (2009).
Stein, J.Presidential Address: Sophisticated Investors and Market Efficiency.” Journal of Finance, 64 (2009), 15171548.
Tong, L.“A Blessing or a Curse? The Impact of High Frequency Trading on Institutional Investors.” Working Paper, Fordham University (2015).
van Kervel, V., and Menkveld, A. J.. “High-Frequency Trading around Large Institutional Orders.” Working Paper, VU University Amsterdam (2015).
White, M. J.“Enhancing Our Equity Market Structure.” Speech, Sandler O’Neill & Partners, L.P. Global Exchange and Brokerage Conference, New York, NY. Available at: (2014).
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Full text views

Total number of HTML views: 1
Total number of PDF views: 302 *
Loading metrics...

Abstract views

Total abstract views: 1027 *
Loading metrics...

* Views captured on Cambridge Core between 25th July 2017 - 24th May 2018. This data will be updated every 24 hours.