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The Impact of High-Frequency Trading on Australian Futures Market Liquidity and Efficiency

Panha Heng, Scott J. Niblock, Jennifer L. Harrison and Hansi Hu
The Journal of Derivatives Summer 2020, jod.2020.1.097; DOI: https://doi.org/10.3905/jod.2020.1.097
Panha Heng
is a PhD graduate in the School of Business and Tourism at Southern Cross University in Gold Coast, Australia
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Scott J. Niblock
is a lecturer in Finance at the School of Business and Tourism at Southern Cross University in Gold Coast, Australia
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Jennifer L. Harrison
is a senior lecturer in finance in the School of Business and Tourism at Southern Cross University in Gold Coast, Australia
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Hansi Hu
is a PhD candidate in Sydney Business School at the University of Wollongong in Sydney, Australia
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Abstract

This article examines the co-location of high-frequency trading (HFT) facilities and capacity of the Australian futures market to absorb information following major scheduled macroeconomic announcements. The findings show that the co-location of HFT facilities has increased trading activities and liquidity across the four futures contracts investigated. The four futures contracts also demonstrate a market capacity to absorb information from major announcements efficiently. For instance, the majority of price adjustments are impounded within 30 seconds following major announcements. We conclude that abnormal trading profits are unlikely to be generated by HFTs in the Australian futures market.

TOPICS: Futures and forward contracts, derivatives

Key Findings

  • • The co-location of HFT facilities has increased trading activities and liquidity across the four futures contracts investigated in the Australian futures market.

  • • These futures contracts also demonstrate a market capacity to absorb information from major announcements efficiently.

  • • Abnormal trading profits are unlikely to be generated by HFTs in the Australian futures market.

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The Journal of Derivatives: 29 (5)
The Journal of Derivatives
Vol. 29, Issue 5
Summer 2022
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The Impact of High-Frequency Trading on Australian Futures Market Liquidity and Efficiency
Panha Heng, Scott J. Niblock, Jennifer L. Harrison, Hansi Hu
The Journal of Derivatives Feb 2020, jod.2020.1.097; DOI: 10.3905/jod.2020.1.097

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The Impact of High-Frequency Trading on Australian Futures Market Liquidity and Efficiency
Panha Heng, Scott J. Niblock, Jennifer L. Harrison, Hansi Hu
The Journal of Derivatives Feb 2020, jod.2020.1.097; DOI: 10.3905/jod.2020.1.097
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