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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title Front-Running and Market Quality: An Evolutionary Perspective on High Frequency Trading
Organization Unit
Authors
  • Thorsten Hens
  • Terje Lensberg
  • Klaus Reiner Schenk-Hoppé
Item Subtype Original Work
Refereed Yes
Status Published electronically before print/final form (Epub ahead of print)
Language
  • English
Journal Title International Review of Finance
Publisher Wiley Online Library
Geographical Reach international
Volume forthcoming
Page Range -
Date 2018
Abstract Text We study front-running by high-frequency traders (HFTs) in a limit order model with continuous trading. The model describes an evolutionary equilibrium of low-frequency traders who compete in portfolio management services by offering investment styles. The introduction of front-runners inflicts heavy losses on speculators, while leaving passive investors relatively unscathed. This encourages investment in the market portfolio and markedly reduces overall turnover. Speculative trading persists despite its lower profitability. By most measures, market quality is not affected to any significant extent by front-running HFTs.
Related URLs
Digital Object Identifier 10.1111/irfi.12159
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