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High frequency trading, hidden orders and market quality in equities
Descriptive
TitleInfo
Title
High frequency trading, hidden orders and market quality in equities
Name
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(type = family)
Gao
NamePart
(type = given)
Cheng
NamePart
(type = date)
1983-
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Cheng Gao
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author
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Mizrach
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Bruce
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Bruce Mizrach
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Advisory Committee
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chair
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Swanson
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Norman
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Norman Swanson
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Advisory Committee
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internal member
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(type = family)
Landon-Lane
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(type = given)
John
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John Landon-Lane
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Advisory Committee
Role
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(authority = RULIB)
internal member
Name
(type = personal)
NamePart
(type = family)
Zhou
NamePart
(type = given)
Xing
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Xing Zhou
Affiliation
Advisory Committee
Role
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(authority = RULIB)
outside member
Name
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Rutgers University
Role
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(authority = RULIB)
degree grantor
Name
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NamePart
Graduate School - New Brunswick
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school
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Text
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theses
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2015
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(type = degree)
2015-10
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2015
Place
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xx
Language
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eng
Abstract
(type = abstract)
The first essay studies the roles of trading speed and hidden orders in limit order markets. We develop a model where liquidity suppliers differ in speed of revising their limit orders and have an option of hiding their orders. The model predicts that fast liquidity suppliers bear lower adverse selection risk and therefore submit orders with narrower bid-ask spreads. Slow liquidity suppliers may overcome their speed disadvantage by using hidden orders. We also provide empirical results that support the model. We find that non-high frequency trading firms account for 70% of liquidity provision in hidden executions, and hidden orders have significantly narrower spreads and lower adverse selection risk than visible orders. Our theoretical model and empirical findings suggest that high frequency technology and hidden orders are substitutes in reducing adverse selection risk. The second essay investigates market quality breakdowns in equity markets. A breakdown occurs when an order book thins to the point where extreme price movements are observed. These are frequently reversed as the market learns that nothing fundamental has occurred. The daily average breakdown frequency from 1993-2011 is 0.64%, with averages in 2010-11 below this amount. Controlling for microstructure effects, breakdowns have fallen significantly since Reg NMS. Spikes in market correlation and high frequency trading (HFT) surges make breakdowns more likely. Exchange traded funds (ETFs) break down more often than non-ETFs. Both ETFs and HFT Granger cause market correlation. Breakdowns are predictable for up to two days. The third essay analyzes HFT activity in equities during U.S. Treasury permanent open market (POMO) purchases by the Federal Reserve. We construct a model to study HFT quote and trade behavior when private information is released. We estimate that HFT firms reduce their inside quote participation by up to 8% during POMO auctions. HFT firms trade more aggressively, and they supply less passive liquidity to non-HFT firms. Market impact also rises during Treasury POMO. Aggressive HFT trading becomes more consistently profitable, and HFT firms earn a higher return per share. We also estimate that HFT firms earn profits of over $105 million during U.S. Treasury POMO events.
Subject
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Topic
Economics
RelatedItem
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TitleInfo
Title
Rutgers University Electronic Theses and Dissertations
Identifier
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ETD
Identifier
ETD_6559
PhysicalDescription
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(authority = gmd)
electronic resource
InternetMediaType
application/pdf
InternetMediaType
text/xml
Extent
1 online resource (x, 124 p. : ill.)
Note
(type = degree)
Ph.D.
Note
(type = bibliography)
Includes bibliographical references
Subject
(authority = ETD-LCSH)
Topic
Electronic trading of securities
Subject
(authority = ETD-LCSH)
Topic
Stock exchanges--Technological innovations
Note
(type = statement of responsibility)
by Cheng Gao
RelatedItem
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TitleInfo
Title
Graduate School - New Brunswick Electronic Theses and Dissertations
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rucore19991600001
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NjNbRU
Identifier
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doi:10.7282/T3XD13P6
Genre
(authority = ExL-Esploro)
ETD doctoral
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Rights
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The author owns the copyright to this work.
RightsHolder
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Name
FamilyName
Gao
GivenName
Cheng
Role
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RightsEvent
Type
Permission or license
DateTime
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2015-05-27 21:40:02
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Name
Cheng Gao
Role
Copyright holder
Affiliation
Rutgers University. Graduate School - New Brunswick
AssociatedObject
Type
License
Name
Author Agreement License
Detail
I hereby grant to the Rutgers University Libraries and to my school the non-exclusive right to archive, reproduce and distribute my thesis or dissertation, in whole or in part, and/or my abstract, in whole or in part, in and from an electronic format, subject to the release date subsequently stipulated in this submittal form and approved by my school. I represent and stipulate that the thesis or dissertation and its abstract are my original work, that they do not infringe or violate any rights of others, and that I make these grants as the sole owner of the rights to my thesis or dissertation and its abstract. I represent that I have obtained written permissions, when necessary, from the owner(s) of each third party copyrighted matter to be included in my thesis or dissertation and will supply copies of such upon request by my school. I acknowledge that RU ETD and my school will not distribute my thesis or dissertation or its abstract if, in their reasonable judgment, they believe all such rights have not been secured. I acknowledge that I retain ownership rights to the copyright of my work. I also retain the right to use all or part of this thesis or dissertation in future works, such as articles or books.
Copyright
Status
Copyright protected
Availability
Status
Open
Reason
Permission or license
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windows xp
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