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High Frequency Trading - October 11, 2012

EDHEC Professor, Ekkehart Boehmer, presenting research on High Frequency Trading on three continents

In the coming months, Ekkehart Boehmer, Professor of Finance at EDHEC Business School and Member of EDHEC-Risk Institute, will be making a number of presentations–in San Diego, Hong Kong, Moscow and Paris–of his ongoing research into the impact of high frequency trading on markets, in which he will present new empirical evidence on the relationship between algorithmic trading and the liquidity, efficiency and volatility of equity markets derived from the analysis of nine years of prices and quotes for 13,000 stocks listed on 39 markets around the world.

On 6 January, 2013, Professor Boehmer will be participating in the 73rd Annual American Finance Association Meeting in San Diego where he will be presenting his paper, "International Evidence on Algorithmic Trading", co-authored with Kingsley Y. L. Fong of the Australian School of Business at the University of New South Wales, and Juan (Julie) Wu, of the University of Georgia.

The paper uses a large sample from 2001-2009 that incorporates 39 exchanges and an average of 12,800 different common stocks to assess the effect of algorithmic trading (AT) intensity on liquidity in the equity market, short-term volatility, and the informational efficiency of stock prices. It exploits the first availability of co-location facilities to identify the direction of causality. The paper finds that, on average, greater AT intensity improves liquidity and informational efficiency, but increases volatility. The volatility increase is robust to a range of different volatility measures and it is not due to more “good” volatility that would arise from faster price discovery. These patterns are widespread and are not limited to a few markets, but they vary in the cross-section of stocks. In contrast to the average effect, more AT reduces liquidity in small stocks; has little effect on the liquidity of low-priced or high-volatility stocks; and leads to greater increases in volatility in these stocks. Finally, during days when market making is difficult, AT provide less liquidity, improve efficiency more, and increase volatility more than on other days.

More recently, at the beginning of October, the paper was presented at the Hong Kong University of Science and Technology and the Hong Kong University, and will also shortly be discussed at the Higher School of Economics in Moscow. Finally, on 10 December, 2013 at the Institut Louis Bachelier in Paris, Professor Boehmer will be taking part in an international conference on the theme of “Market Microstructure: Confronting Many Viewpoints”, bringing together international experts in the field to discuss current research and future issues.

Professor Boehmer’s research interests lie principally in the microstructure of equity markets, and his most recent publications deal with short-selling, the predictability of stock returns, and the role of institutional investors. He has published in leading journals, including Journal of Finance, Journal of Financial and Quantitative Analysis, Journal of Financial Economics, Journal of Financial Intermediation, and Review of Financial Studies. He serves as associate editor to Review of Financial Studies and Financial Management. Professor Boehmer has also held positions in the financial industry, as Director of Research at the New York Stock Exchange and Senior Economist at the United States Securities and Exchange Commission. Prior to joining EDHEC Business School as full-time faculty, he was an affiliate professor of the EDHEC-Risk Institute PhD in Finance programme and the John B. Rogers Professor of Banking and Finance at the University of Oregon Lundquist College of Business and prior to that, the holder of the Nichols Professorship of Finance at Texas A&M University Mays Business School. He holds an MA in Economics and a PhD in Finance from the University of Georgia.