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High-Frequency Trading around Large Institutional Orders

Author

Listed:
  • Vincent van Kervel
  • Albert J. Menkveld

    (VU University Amsterdam; Tinbergen Institute, The Netherlands)

Abstract
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 position 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 profit against higher risk of detection by HFTs and being preyed on.

Suggested Citation

  • Vincent van Kervel & Albert J. Menkveld, 2017. "High-Frequency Trading around Large Institutional Orders," Tinbergen Institute Discussion Papers 17-092/IV, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20170092
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    File URL: https://papers.tinbergen.nl/17092.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    High-frequency traders; institutional investors; trading patterns; transaction cost;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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