“Market Integration and High Frequency Trading” by Jonathan Brogaard
University of Washington
We study high frequency trading (HFT) role in incorporating information within and across exchanges in Canada. While trades are more informative than limit orders, trades represent less than three percent of orders. Limit order placements and cancellations at the best prices correspond to more than 50% of orders and incorporate the majority of information. HFT’s limit orders are individually more informative and are roughly five times more prevalent than nHFT’s limit orders. Therefore, HFT’s quotes are the primary channel through which price discovery occurs. HFTs initiate 80% of price changes that move across exchanges. HFT closes a similar fraction of price disagreement across exchanges.