Impact of High Frequency Trading on Volatilities of Securities on German Market
| Authors | |
|---|---|
| Year of publication | 2014 |
| Type | Article in Proceedings |
| Conference | European Financial Systems 2014. Proceedings of the 11th International Scientific Conference |
| MU Faculty or unit | |
| Citation | |
| Field | Management and administrative |
| Keywords | high frequency trading; volatility; linear regression; algorithmic trading; trading volume |
| Description | Algorithmic trading has become the crucial part of trading on world equity markets. Almost every big stock exchange undertook process of hybridization and allowed automated order submission. This led to many manipulative strategies which could have impact on market volatility. This paper is focused on these strategies and their impact on volatility. Furthermore, the reduction of the volatility is tested as a result of implemented regulations. Econometrical methods are used to determine relationship between high-frequency trading activity and volatility of chosen securities. Their selection is based on volume of trading, number of trades and especially number of orders and cancelled orders, which are the main indicator of manipulation activity. Explained variable in the models is the implied volatility of securities and explaining variables are derived from trading activity and dummy variables of events of hybridization and regulation of markets. Results of this paper confirm that unregulated high frequency trading can cause increase in the volatility of market prices on Eurex exchange and are presented and discussed in this paper. |
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