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The impact of high-frequency trading on the Swedish stock market – based on liquidity and volatility
Linköping University, Department of Management and Engineering, Economics.
Linköping University, Department of Management and Engineering, Economics.
2018 (English)Independent thesis Advanced level (degree of Master (One Year)), 20 credits / 30 HE creditsStudent thesisAlternative title
Högfrekvenshandelns påverkan på den svenska aktiemarknaden– baserat på likviditet och volatilitet (Swedish)
Abstract [en]

This paper studies how high-frequency trading (HFT) affects the Swedish stock market quality based on volatility and liquidity measures. Previous studies show ambiguous results where a few propose that HFT deteriorates market quality by increasing volatility and decreasing liquidity while some studies point in the opposite direction.By setting up a simultaneous equations system with instrumental variables and estimating the parameters with Generalized Methods of Moments (GMM), this paper finds that in the majority of the investigated stocks high-frequency trading activity reduces bid ask spreads and therefore increases liquidity, i.e. enhancing market quality. Additionally, the results also show that the volatility decreases through high-frequency trading activity. Hence, both measures are indicating that the market quality is positively affected by high-frequency trading.However, interesting is the analysis and discussion on whether high-frequency trading strategies such as spoofing and layering potentially can contribute to false liquidity. This would mean that the market quality is impaired due to HFT. This paper also examines the reversed relationship, how the liquidity and volatility affect HFT activity and conclude that HFT is not affected by how liquid or volatile the market is.

Place, publisher, year, edition, pages
2018. , p. 56
Keywords [en]
High-frequency trading, HFT, liquidity, volatility, quality
Keywords [sv]
Högfrekvenshandel, HFT, likviditet, volatilitet, kvalitet
National Category
Economics
Identifiers
URN: urn:nbn:se:liu:diva-148882ISRN: LIU-IEI-FIL-A--18/02897--SEOAI: oai:DiVA.org:liu-148882DiVA, id: diva2:1222183
Subject / course
Master of Science Thesis (Magisteruppsats från Affärsjuridiska programmet)
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Available from: 2018-07-02 Created: 2018-06-21 Last updated: 2018-07-02Bibliographically approved

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CiteExportLink to record
Permanent link

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Citation style
  • apa
  • ieee
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  • vancouver
  • Other style
More styles
Language
  • de-DE
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  • en-US
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  • nn-NO
  • nn-NB
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  • Other locale
More languages
Output format
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