Risk and return in high-frequency trading
File(s)Kirilenko Risk Return.pdf (633.58 KB)
Accepted version
OA Location
Author(s)
Baron, Matthew
Brogaard, Jonathan
Hagströmer, Björn
Kirilenko, Andrei
Type
Journal Article
Abstract
We study performance and competition among firms engaging in high-frequency trading (HFT). We construct measures of latency and find that differences in relative latency account for large differences in HFT firms’ trading performance. HFT firms that improve their latency rank due to colocation upgrades see improved trading performance. The stronger performance associated with speed comes through both the short-lived information channel and the risk management channel, and speed is useful for various strategies, including market making and cross-market arbitrage. We find empirical support for many predictions regarding relative latency competition.
Date Issued
2019-06
Date Acceptance
2018-09-19
Citation
Journal of Financial and Quantitative Analysis, 2019, 54 (3), pp.993-1024
ISSN
0022-1090
Publisher
Cambridge University Press (CUP)
Start Page
993
End Page
1024
Journal / Book Title
Journal of Financial and Quantitative Analysis
Volume
54
Issue
3
Copyright Statement
© Michael G. Foster School of Business, University of Washington 2018. This paper has been accepted for publication and will appear in a revised form, subsequent to peer-review and/or editorial input by Cambridge University Press.
Identifier
https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/risk-and-return-in-highfrequency-trading/81F7800250E37410ADB20A989564814B
Subjects
Finance
1502 Banking, Finance and Investment
1501 Accounting, Auditing and Accountability
Publication Status
Published
Date Publish Online
2018-09-19