HFT Helps Improve Price Efficiency, Says BOE Working Paper

A Bank of England working paper finds that aggressive buying among HFT firms usually results in a lasting change in stock prices

The normal debate over high frequency trading (HFT) is whether it adds to price discovery and market liquidity, or simply puts a drag on earnings through unnecessary intermediation. But the quant crash of 2007 and the flash crash of 2010 show how correlations between automatic trading can pose a real threat to market stability, at least in extreme cases.

A recent Bank of England working paper written by Evangelos Benos, James Brugler, Erik Hjalmarsson, and Filip Zikes looks at how correlated HFT strategies really are on a normal day and the effect that they have on prices.

“We find that...