Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/197861 
Year of Publication: 
2018
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2018-8
Publisher: 
Bank of Canada, Ottawa
Abstract: 
Using bond futures data, we test whether high-frequency trading (HFT) is engaging in back running, a trading strategy that can create costs for financial institutions. We reject the hypothesis of back running and find instead that HFT mildly improves trading costs for institutions. After a rapid increase in the number of HFTs, trading costs as measured by implementation shortfall decrease by 27 basis points for smaller-sized positions ($ 2 - $ 10 million notional). For larger-sized positions there is no significant effect. We explain the improvement as being the consequence of HFT reducing effective spreads and per-trade price impacts.
Subjects: 
Financial markets
Market structure and pricing
Financial system regulation and policies
JEL: 
G20
G14
L10
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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