Nathanael Berger: The Impact of High Frequency Trading

Sophy Ramírez  | 30 de mayo de 2020  | Vistas: 54

When the government imposes economic regulations, some new initiatives are created because of the necessity to continue with an efficient market system. The economist, Nathanael Berger, explains the origin of High-Frequency Trading (HFT) and how it has benefited the market.

Berger mentions the story of how HFT, a dark fiber optic cable, was developed and modified the stock exchange because this technology reduces the round trip time of transactions by 1-1.5 milliseconds. He also points out how this short amount of time generated greater earnings for the traders.

The economist presents that besides the technological features that HFT could bring, there were other reasons why it was made, like the development of new regulations in the market system, and fragmentation of the market microstructure.

It’s not surprising that in such a fragmented environment, speed advantages would become very important and key for success.” — Nathanael Berger

Berger shows the development of his study, where the effects of the High-Frequency Trading were analyzed in an isolated environment, so they could determine how buyers and sellers interacted with and without HFT’s speed benefits. They also evaluated if this resource is beneficial or damaging to the market system.

For experimental research, create a very polar case. You have an environment where there isn’t the case of study and then you have another one where there are two or one strategies that are probably more extreme than in the reality just to study if there is a difference.” — Nathanael Berger

Nathanael Berger concludes that High-Frequency Trading can increase the volume of transactions and may decrease the earnings of the traders that don’t use HFT, without reducing market quality. Then he encourages the public to use this resource and advises to be careful with the new regulations of the policymakers because the side effects could be damaging.


Master in Behavioral and Computational Economics