Abstract:

Using high-frequency time series of stock prices and share volumes sizes from January 2002-May 2009, this paper investigates whether the effects of the onset of high-frequency trading, most prominent since 2005, are apparent in the dynamics of the dollar traded volume. Indeed it is found in almost all of 14 heavily traded stocks, that there has been an increase in the Hurst exponent of dollar traded volume from Gaussian noise in the earlier years to more self-similar dynamics in later years. This shift is linked both temporally to the Reg NMS reforms allowing high-frequency trading to flourish as well as to the declining average size of trades with smaller trades showing markedly higher degrees of self-similarity.

Smith, Reginald, Is High-Frequency Trading Inducing Changes in Market Microstructure and Dynamics? (June 28, 2010). Available at SSRN: http://ssrn.com/abstract=1632077 or http://dx.doi.org/10.2139/ssrn.1632077

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