High-Frequency Trading around Large Institutional Orders

Vincent Van Kervel, Albert J. Menkveld

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Liquidity suppliers lean against the wind. We analyze whether high-frequency traders (HFTs) lean against large institutional orders that execute through a series of child orders. The alternative is HFTs trading with the wind, that is, in the same direction. We find that HFTs initially lean against these orders but eventually change direction and take positions in the same direction for the most informed institutional orders. Our empirical findings are consistent with investors trading strategically on their information. When deciding trade intensity, they seem to trade off higher speculative profits against higher risk of being detected and preyed on by HFTs.

Original languageEnglish
Pages (from-to)1091-1137
Number of pages47
JournalJournal of Finance
Issue number3
Publication statusPublished - 1 Jun 2019


∗Vincent van Kervel is at Pontificia Universidad Católica de Chile. Albert J. Menkveld is at Vrije Universiteit Amsterdam and Tinbergen Institute. We thank Andrew Ainsworth, Bruno Biais (the Editor), Jonathan Brogaard, Björn Hagströmer, Terrence Hendershott, Ron Kaniel, Robert Korajzyck, Charles-Albert Lehalle, Anna Obizhaeva, Neil Pearson, Marc Ponsen, Talis Putnins, Yazid Sharaiha, George Sofianos, René Wells, Avi Wohl, Shihao Yu, an anonymous Associate Editor, and two anonymous referees for their very useful comments. We are also grateful for comments received during conferences at the Alan Turing Institute, NBIM, and Tel Aviv University and at seminars at AFM, CFTC, Université Paris Dauphine, Goldman Sachs, SEC, University of Sydney, UNSW, and UTS. We thank Bernard Hosman and Sailendra Prasanna Mishra for excellent research assistance. Menkveld gratefully acknowledges NWO for a Vidi grant and van Kervel gratefully acknowledges the financial support of the Fondecyt Iniciación (project 11150485). The authors further acknowledge support from APG, DNB, NBIM, Swedbank Robur, and QuantVal-ley/FdR Quantitative Management Initiative. The authors have signed nondisclosure agreements for the proprietary data used in this study.

FundersFunder number
Fondecyt Iniciación11150485
Swedbank Robur
Alberta Pulse Growers Commission
Nederlandse Organisatie voor Wetenschappelijk Onderzoek
De Nederlandsche Bank

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