%0 Journal Article %A Shinichi Nagata %A Koji Inui %T Does High-Speed Trading Enhance Market Efficiency? Empirical Analysis
on “Arrowhead” of the Tokyo Stock Exchange %D 2014 %R 10.3905/jot.2014.9.4.037 %J The Journal of Trading %P 37-47 %V 9 %N 4 %X In this article, we use tick data on stock trades recorded with 1/1000-second time stamp to investigate the effects of Arrowhead—a high-speed trading system—on the Tokyo Stock Exchange since its introduction in January 2010. Specifically, we conducted a comparative evaluation of transaction costs, market impact, and the market’s price discovery function on the basis of the size of executed trades or the number of stocks, and on the effective spread and adverse selection cost that were obtained, while measuring the time elapsed since the execution. The analysis confirmed that while Arrowhead has improved the average efficiency of the market, it is highly possible that it has obstructed rather than enhanced trade efficiency for relatively large trading sizes, especially for stocks that comprise the Nikkei Average Index. Moreover, considering overall trading conditions, it is challenging for investors lacking access to high-speed trading methods to benefit from the improved efficiency.TOPICS: Security analysis and valuation, exchanges/markets/clearinghouses, quantitative methods, developed %U https://jot.pm-research.com/content/iijtrade/9/4/37.full.pdf