When is the order to trade fee effective?

Aggarwal, Nidhi, Panchapagesan, Venkatesh and Thomas, Susan (2021) When is the order to trade fee effective? [Working papers (or Preprints)]

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Regulators use measures such as a fee on high order to trade ratio (OTR) to slow down high frequency trading. Their impact on market quality is, however, mixed. We study a natural experiment in the Indian stock market where such a fee was introduced twice, with differences in motivation and implementation. Using a difference-in-difference approach, we find that the fee decreased OTR and improved market quality when it was imposed on all orders, while it had little effect when it was imposed selectively on some orders. Improvement in liquidity was driven by a reduction in adverse selection costs following lower OTR.

Item Type: Working papers (or Preprints)
Keywords: Algorithmic trading | Financial regulation | Market efficiency | Market liquidity | Financial derivatives
Subjects: Social Sciences and humanities > Economics, Econometrics and Finance > Banking and Finance
JGU School/Centre: Jindal Global Business School
Depositing User: Mr. Syed Anas
Date Deposited: 15 Mar 2022 05:33
Last Modified: 15 Mar 2022 06:58
Official URL: https://xkdr.org/papers/aggarwaletal_otrimpact.pdf
URI: https://pure.jgu.edu.in/id/eprint/1621


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