"Des waerelds doen en doolen, is maar een mallemoolen,"

"Des waerelds doen en doolen, is maar een mallemoolen," engraving from Het Groote Tafereel der Dwaasheid, 1720.

"The actions and designs of the world go round as if in a mill." South Sea bubble financial crisis.

Saturday, July 7, 2012

High Frequency Trading and Market Quality






 A new report by Credit Suisse looks at the data and finds that HFT has not made markets worse off. Their chosen measures of market quality is volatility, spread, the messaging traffic and the risks of flash crash events. While one must applaud the effort of looking at a set of objective data, the report says nothing about allocational efficiency. Yes ! HFT certainly helps to bring down volatility, but it then means that HFT, like most financial innovation these past decades, helps allocating risk - and not capital.

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