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Dermot Murphy and the Tarnish on HFT

Dermot Murphy

High frequency trading has been the object of much scrutiny and criticism in the last few years. Currently, all three Democratic presidential primary candidates are proposing some form of tax on HFT both to raise revenue and mitigate the market volatility HFT supposedly creates. But are high frequency traders really the bad actors they’re made out to be? UIC Business’ Dermot Murphy and Northwestern’s Robert Korajczyk find that HFT is far from all bad; in many cases, HFT provides the market liquidity for which it is celebrated. According to their research, only in a subset of so-called “stressful trades” does HFT reduce liquidity and increase trading costs.

Murphy has recently presented their research, “High Frequency Market Making to Large Institutional Trades,” at both the University of British Columbia and the University of Toronto’s Rotman School of Management. Coverage of the research can be found at Investment Executive and KelloggInsight.