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High‐Frequency Trading around Large Institutional Orders
Author(s) -
VAN KERVEL VINCENT,
MENKVELD ALBERT J.
Publication year - 2019
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12759
Subject(s) - high frequency trading , market liquidity , business , monetary economics , economics , finance
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.