The effect of high-frequency trading on market quality has generated strong interest among academics, investors and regulators alike.
To further explore the impact high-frequency trading can have on the markets, Jennifer Conrad, Sunil Wahal and Jin Xiang—authors of the study “High Frequency Quoting, Trading, and the Efficiency of Prices”—conducted two types of tests: (a) unconditional tests, which were designed to provide evidence for a comprehensive cross section of securities over an extended and relatively recent time series; and (b) conditional tests, which measure the effect of high-frequency traders (HFTs) under different types of market conditions and across changes in market structure.
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