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The implications of high-frequency trading on market efficiency and price discovery

Lookup NU author(s): Viktor Manahov, Professor Robert Hudson

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Abstract

This study investigates the implications of high-frequency trading (HFT) on market efficiency and price discovery by using state-space models and real-life one-minute high-frequency data of the six most traded currency pairs worldwide - USD/EUR, USD/JPY, USD/GBP, USD/AUD, USD/CHF and USD/CAD. We found significant evidence that HFT enhances market efficiency and has a beneficial role in price discovery by trading in the direction of the permanent component of the state-space model and in the opposite direction of its transitory component.

Publication metadata

Author(s): Manahov V, Hudson R

Publication type: Article

Publication status: Published

Journal: Applied Economics Letters

Year: 2014

Volume: 21

Issue: 16

Pages: 1148-1151

Online publication date: 07/05/2014

ISSN (print): 1350-4851

ISSN (electronic): 1466-4291

Publisher: Routledge

URL: http://dx.doi.org/10.1080/13504851.2014.914135

DOI: 10.1080/13504851.2014.914135

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