Algorithmic Trading and Information (University of California, Berkeley – Haas School of Business and Karlsruhe Institute of Technology)

June 21, 2011

KEYWORDS: Algorithmic Trading

Authors:

Terrence Hendershott, University of California, Berkeley - Haas School of Business and Ryan Riordan, Karlsruhe Institute of Technology

 

Organizations:
Summary:

We examine algorithmic trades (AT) and their role in the price discovery process in the 30 DAX stocks on the Deutsche Boerse in January 2008. AT liquidity demand represents 52% of volume and AT supplies liquidity on 50% of volume. AT act strategically by monitoring the market for liquidity and deviations of price from fundamental value. AT consume liquidity when it is cheap and supply liquidity when it is expensive. AT contribute more to the efficient price by placing more efficient quotes and AT demanding liquidity to move the prices towards the efficient price.

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