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Show 235 THE UNIVERSITY OF UTAH This paper discusses the issues involving high-frequency trading (HFT), in particular the po-tential impact of HFT on financial markets. I review the theoretical and empirical literature, addressing liquidity provision, volatility, potential for manipulation, and effects on market ef-ficiency to further understanding of the highly debated benefits and drawbacks of HFT. HFT allows for new trading opportunities that potentially require regulation. I explain why HFT strategies need to be carefully assessed before a determination can be made as to whether the strategies should be restricted or allowed to roam freely through the market. While the existing empirical literature shows that liquidity is being provided through HFT, additional concerns have been raised. Volatility appears to be lessened in the market during typical periods, but concerns have been expressed regarding the role of HFT during periods of market crisis. Press coverage has raised concerns over the potential use of manipulative tac-tics, which may be difficult or impossible to detect with currently available data. However, in contrast to the manipulation assertions, HFT has been shown to improve market efficiency and to be associated with a reduction in trading costs. Regulators are studying HFT in an effor t to gain deeper understanding of these issues. This paper reviews each of these issues, and concludes with an assessment of the most pressing needs to be addressed in regards to HFT. HIGH-FREQUENCY TRADING: A SURVEY OF MARKET IMPACT Steven Michael Carroll (Hendrik Bessembinder) Department of Finance University of Utah honors college Steven Michael Carroll Hendrik Bessembinder |