Topic: Correlated High-Frequency Trading

Speaker: Dan Li, Assistant Professor of Finance, School of Economics and Finance, University of Hong Kong

Date: December 2^nd (Wed.)

Time: 12:30pm-1:30pm

Location: Building 4, Room 101

Language: English

Abstract:

This paper studies correlations between the strategies of high-frequency trading (HFT) firms, which is a manifestation of the extent of competition in which these firms engage when pursuing similar strategies. We begin by establishing new stylized facts about the magnitude of time-series and cross-sectional correlations for various measures of HFT strategies. We then conduct a principal component analysis, showing that there are several underlying common strategies and that multiple HFT firms compete on each of these strategies. We investigate whether competition between HFT firms creates a systematic return factor, but find no supporting evidence for such an influence. However, the short-interval return volatility of most stocks loads negatively on a market-wide measure of correlated HFT strategies. The mitigating impact of HFT competition on stock volatility appears to be driven at least in part by a market-making strategy. The paper ends by investigating the interrelationship between two forms of competition—that between HFT firms and that between trading venues.

About the speaker:

Dan Li is an assistant professor of finance at School of Economics and Finance, University of Hong Kong. Previously, Dan Li also conducted research for Capital Markets CRC Ltd, and the investment Industry Regulatory Organization of Canada. She received her Ph.D. in Finance from York University, and she also holds a M.A. in Economics from Fudan University. Zhang teaches Derivatives and Foundations of Finance for undergraduate students. Her primary research focuses on empirical corporate finance, entrepreneurship, and market microstructure and security market surveillance. Dr. Li’s publications have appeared on the Journal of Corporate Finance, Journal of Financial Economics, and Corporate Governance: an International Review.