High-Frequency Trading and Dark Pool Activity

Abstract

This paper considers the effect of high-frequency trading activity on the proportion of overall trade volume occurring in dark pools. We measure the degree of high-frequency trading (HFT) within the market for a particular security by using cancel to trade ratio as a proxy. Data on percent of trade volume in dark pools, cancel to trade, and variables to control for market quality are collected for 744 securities weekly from the time period of August 25, 2014 to November 14, 2014. Using a fixed effects panel regression, this study does not find significant evidence to support the conjecture that HFT pushes trade volume off of the public exchanges