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Korean Journal of Financial Studies 2014;43(5):847-878.
Published online December 31, 2014.
The Behavior and Performance of Individual High Frequency Traders on the Korea Stock Market
Min Cheol Woo, Woo Baik Lee
개인투자자의 고빈도매매 행태와 성과 분석
우민철, 이우백
Abstract
The Flash Crash, on May 6, 2010, raised a lot of discussion about the influence of high frequency trading (“HFT”) on the financial markets. Existing literature shows evidence that HFT may positively affect market quality in terms of reduced spreads and improved price discovery. With the growing attention of practitioners and policy makers, the issue of the profitability of HFT becomes more important. While HFT has been assumed to be confined to professional investors, the number of individual investors in HFT, utilizing the advanced IT infrastructure and programming skills, has seen dramatic growth. Using a highly detailed dataset, we categorize the HFT strategies deployed by individual investors in the Korean market and investigate their profitability. We find evidence that individual HFTs adopt two distinguishable strategies. The first strategy is constructing small-size order flow at high frequencies within one second. The profit of this strategy, holding statistical significance, is not very high. The second one is buying stocks with good news within one second after the announcement is made. This strategy exhibits a relatively strong significance for the stocks with a narrow spread and high volatility. These findings have two important implications. First, individual investors, with the use of API and programming skills, will be able to benefit from HFT. Second, we can expect that individual investors would become important players in HFT. Concerning this trend, regulatory authorities need to impose intense monitoring on price manipulation when the HFT strategies with small-size orders cause price distortion. Overall, the empirical findings and implications of the present paper, also showing the current trends in HFTs, are expected to enhance the understanding of HFT traders in the Korean financial market.
Key Words: 고빈도거래,시장 급락,응용프로그램 인터페이스,차익거래,API,Event Arbitrage,Flash Crash,HFT,HTS


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