High Frequency Trading: A Bibliography March 2016 Contents Preface .......................................................................................................................................................... 3 Research Highlights ...................................................................................................................................... 4 Volatility ..................................................................................................................................................... 4 Manipulation .............................................................................................................................................. 6 Market Quality ........................................................................................................................................... 6 Investor Costs ........................................................................................................................................... 8 Evidence-Based Research Bibliography ..................................................................................................... 10 The Wall Street Journal's "Dark Market" Series (selected articles) ............................................................ 40 High Frequency Trading and "Insider Trading 2.0" ..................................................................................... 42 Press Editorials ........................................................................................................................................... 43 Op-Eds and Commentary ........................................................................................................................... 45 Books and Documentaries .......................................................................................................................... 57 "Flash Boys" by Michael Lewis ................................................................................................................... 60 60 Minutes ............................................................................................................................................... 60 Reviews ................................................................................................................................................... 60 CNBC ...................................................................................................................................................... 61 Interviews ................................................................................................................................................ 61 Other Interviews ...................................................................................................................................... 62 "Flash Boys": Supporting Evidence ........................................................................................................ 62 Government Reaction to HFT ..................................................................................................................... 64 Central Banks .......................................................................................................................................... 64 Regulators ............................................................................................................................................... 66 Legislators ............................................................................................................................................... 69 Prosecutors ............................................................................................................................................. 70 Other ....................................................................................................................................................... 70 High Frequency Trading Defined ................................................................................................................ 71 Industry Participants ................................................................................................................................ 71 Academics ............................................................................................................................................... 71 Regulators ............................................................................................................................................... 72 High Frequency Trading: 2 A Bibliography Preface This is the fifth edition of a research bibliography on the negative effects of high frequency trading (HFT). It includes a wide variety of academic, government, and industry data-driven research from institutions around the world, including MIT, Harvard, Princeton, the Federal Reserve Bank, the Bank of England, the University of Chicago, BlackRock, Cornell, the SEC, the European Central Bank, Yale, Oxford, Cambridge, the London School of Economics, the United Nations, the International Monetary Fund, and many others. HFT research is especially relevant after the events of October 15, 2014, when yields on U.S. Treasuries flash crashed, and the events of August 24, 2015, when U.S. stock markets suffered their second trillion dollar flash crash in five years. Among other topics, research posted here explores how the most common high frequency trading business model today - unregulated or poorly regulated market making, often called “scalping” - can be abusive and disruptive. Several of these studies even predate automation. Along with evidence-based research, separate sections of this bibliography include press editorials, op- eds, other commentary, and a variety of statements from government bodies and government officials from around the world about high frequency trading. This document begins with an overview and research highlights. A detailed research bibliography containing nearly 150 studies follows the highlights. Significant critical study findings are summarized or quoted in the highlights and the detailed bibliography. While this bibliography summarizes and excerpts critical findings, some studies cited here show mixed effects about high frequency trading. Interested readers can link to the full text of almost every included work. Please also note various industry, academic, and government definitions of high frequency trading listed in the final section of this document, and note the special section on Michael Lewis's "Flash Boys." R. T. Leuchtkafer March 2016 High Frequency Trading: 3 A Bibliography Research Highlights Volatility In a 2010 study of the 2010 Flash Crash, the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission found that high frequency traders substantially increased volatility during the event and accelerated the crash. Kirilenko et. al. (2014) studied the 2010 Flash Crash and found the same, concluding that high frequency traders "can amplify a directional price move and significantly add to volatility." Menkveld and Yueshen (2015) confirmed the U.S. government's and Kirilenko's narratives about the Flash Crash. The U.S. Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission released a Joint Staff Report about events on October 15, 2014, when "the market for U.S. Treasury securities, futures, and other closely related financial markets experienced an unusually high level of volatility." The report found high frequency trading firm strategies "aggressively traded in the direction of price moves during the event window, accounting for the bulk of the overall aggressive trading imbalance observed." Madhavan (2012) examined almost two decades of U.S. equities data and wrote that "The link to higher frequency quotation activity and the current high levels of fragmentation help explain why a Flash Crash did not occur before and offers a counterpoint to the view that the Flash Crash stemmed from an unlikely confluence of events." The Australian Securities and Investments Commission, the stock market regulator in Australia, found in a 2013 study that during volatile markets high frequency traders reduce their liquidity supply and increase their liquidity demands. After studying a decade's worth of U.S. data, Hasbrouck (2015) found that high frequency quoting increased a measure of intraday volatility by a factor of two or more. The Bank for International Settlements looked at foreign exchange markets and concluded in a 2011 study that high frequency traders exacerbate volatility in stressed markets. In 2016 the Bank for International Settlements published a study of the recent evolution of sovereign debt markets and found that because of the adoption of algorithmic and high frequency trading "some market participants have highlighted that while liquidity is ample in normal times, it may have become more fragile in episodes of heightened demand for trading immediacy." Ben-David et. al (2012) studied 14 years of U.S. equity data and concluded that "HFT can be highly destabilizing as it propagates shocks across markets at very high speed." Bichetti et. al. (2012) examined 15 years of U.S. equities and futures data and determined that HFT strategies cause assets to "deviate from their fundamentals." Boehmer et. al. analyzed nine years of stock market data from 37 countries and in a 2012 paper concluded that algorithmic trading, including high frequency