High-Frequency Trading around Large Institutional Orders

Vincent Van Kervel, Albert J. Menkveld

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

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
Volume74
Issue number3
DOIs
Publication statusPublished - 1 Jun 2019

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High-frequency trading
Traders
Suppliers
Trade intensity
Liquidity
Trade-offs
Profit
Investors

Cite this

Van Kervel, Vincent ; Menkveld, Albert J. / High-Frequency Trading around Large Institutional Orders. In: Journal of Finance. 2019 ; Vol. 74, No. 3. pp. 1091-1137.
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High-Frequency Trading around Large Institutional Orders. / Van Kervel, Vincent; Menkveld, Albert J.

In: Journal of Finance, Vol. 74, No. 3, 01.06.2019, p. 1091-1137.

Research output: Contribution to JournalArticleAcademicpeer-review

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