Monday 11th June 2012 – 12:30 to 13:30
Speaker(s): Austin Gerig (CABDyN Complexity Centre, SBS, University of Oxford)
Nearly half of all transactions in financial markets are caused by computers, programmed to trade quickly and autonomously in and out of securities numerous times each day. There is considerable debate on the risks/benefits of such trade, called “high-frequency trading” (HFT). Here, I show that HFT performs an important task that increases market efficiency and is impossible without machines: it synchronizes the prices of related securities. Although potential exists for HFT to create spurious relationships in markets – which should be monitored – preliminary evidence suggests this is not the case. This research highlights an important role of HFT, explains why HFT activity concentrates in some securities and not in others, and will be useful for policy makers currently deciding how to regulate HFT.