The Mysterious Ethics of High-Frequency Trading

Business Ethics Quarterly

Volumn 26, Issue 1, 2016, Pages 1-22

  Cooper, Ricky ^a   Davis, Michael ^a   Van Vliet, Ben ^a  

^a ILLINOIS INSTITUTE OF TECHNOLOGY   (United States)

Author keywords

deception; efficient markets; ethics of financial services; finance ethics; High frequency trading; prudence

Indexed keywords

EID: 84987818116     PISSN: 1052150X     EISSN: None     Source Type: Journal    
DOI: 10.1017/beq.2015.41     Document Type: Article

References (49)

1. Anand, A., Chakravarty, S., Martell, T. 2005. "Empirical Evidence on the Evolution of Liquidity: Choice of Market Versus Limit Orders by Informed and Uninformed Traders." Journal of Financial Markets 8: 288-308.
2. Angel, J. J., McCabe, D. 2013. "Fairness in Financial Markets: The Case of High Frequency Trading." Journal of Business Ethics 112: 585-595.
3. Barnes, A. 1997. Seeing Through Self-Deception. New York: Cambridge University Press.
4. Bernat, G., Burns, A., Llamosi, A. 2001. "Weakly Hard Real-Time Systems." IEEE Transactions on Computers 50: 308-321.
5. Bilson, J., Kumiega, A., Van Vliet, B. 2010. "Trading Model Uncertainty and Statistical Process Control." Journal of Trading 5: 39-50.
6. Bloomfi eld, R., O'Hara, M. 1999. "Market Transparency: Who Wins and Who Loses?" Review of Financial Studies 12: 5-35.
7. Bloomfi eld, R., O'Hara, M., Saar, G. 2005. "The 'Make or Take' Decision in an Electronic Market: Evidence on the Evolution of Liquidity." Journal of Financial Economics 75: 165-199.
8. Boatright, J. R. 2008. Ethics in Finance, 2 nd ed. Oxford: Blackwell Publishing.
9. -. 2015. Ethics in Finance, 3 rd ed. Forthcoming.
10. Brogaard, J. A. 2010. "High Frequency Trading and Its Impact on Market Quality." Northwestern University working paper. Accessed on December 10, 2015. https://secure.fi a.org/ptg-downloads/hft-trading.pdf.
11. Buller, D. B., Burgoon, J. K., White, C. H., Ebesu, A. S. 1994. "Interpersonal Deception VII Behavioral Profi les of Falsifi cation, Equivocation, and Concealment." Journal of Language and Social Psychology 13: 366-395.
12. Buller, D. B., Burgoon, J. K., Buslig, A., Roiger, J. 1998. "Interpersonal Deception Theory: Examining Deception from a Communication Perspective." Arizona University. U.S. Army Research Institute for the Behavioral and Social Sciences, DTIC Research Note. Accessed on December 10, 2015. http://www.au.af.mil/au/awc/awcgate/army/ari98-16-interpersonal-deception.pdf
13. Cao, C., Hansch, O., Wang, X. 2009. "The Information Content of an Open Limit-Order Book." Journal of Futures Markets 29: 16-41.
14. Cooper, R., Ong, M., Van Vliet, B. 2015. "Multi-scale Capability: A Better Approach to Performance Measurement in Algorithmic Finance." Algorithmic Finance 4: 53-68.
15. Cooper, R., Van Vliet, B. 2012. "Whole Distribution Statistical Process Control for High Frequency Trading." Journal of Trading 7: 57-68.
16. Davis, M., Kumiega, A., Van Vliet, B. 2013. "Ethics, Finance, and Automation: A Preliminary Survey of Problems in High Frequency Trading." Science and Engineering Ethics 19: 851-874.
17. Del Guerico, D. 1996. "The Distorting Effect of the Prudent-Man Laws on Institutional Equity Investments." Journal of Financial Economics 40: 31-62.
18. Deweese-Boyd, I. 2012. "Self-Deception." The Stanford Encyclopedia of Philosophy, edited by Zalta, E. N. Accessed on December 10, 2015. plato.stanford.edu/archives/spr2012/entries/self-deception/
19. Fabozzi, F., Focardi, S. M., Jonas, C. 2011. "High-Frequency Trading: Methodologies and Market Impact." Review of Futures Markets 9: 7-38.
20. Farmer, J. D., Lo, A.W. 1999. "Frontiers of Finance: Evolution and Effi cient Markets." Proceedings of the National Academy of Sciences 96: 9991-9992.
21. Farmer, J. D., Skouras, S. 2013. "An Ecological Perspective on the Future of Computer Trading." Quantitative Finance 13: 325-346.
22. Fleming, A. 1977. "Prudent Investments: The Varying Standards of Prudence." Real Property, Probate and Trust Journal, 12: 243-255.
23. Gert, B. 2005. Morality: Its Nature and Justifi cation, Revised Ed. Oxford: Oxford University Press.
24. Hasbrouck, J. 1995. "One Security, Many Markets: Determining the Contributions to Price Discovery." Journal of Finance 50: 1175-1199.
25. Hendershott, T., Jones, C. M., Menkveld, A. J. 2011. "Does Algorithmic Trading Improve Liquidity?" Journal of Finance 66: 1-33.
26. Hendershott, T., Riordan, R. 2013. "Algorithmic Trading and The Market for Liquidity." Journal of Financial and Quantitative Analysis 48: 1001-1024.
27. Hespanha, J. P., Ateskan, Y. S., Kizilocak, H. H. 2000. "Deception in Non-Cooperative Games with Partial Information." In Proceedings of the 2 nd DARPA-JFACC Symposium on Advances in Enterprise Control.
28. Huber, J. 2004. "A Contribution to Solving an Old Puzzle: Why Different Trading Strategies Persist in Competitive Markets." Journal of Academy of Business and Economics 3: 171-190.
29. Johnston, M. 1988. "Self-Deception and the Nature of Mind." In Perspectives on Self-Deception, edited by McLaughlin, B., Rorty, A. O., 63-91. Berkeley: University of California Press.
30. Jovanovic, B., Menkveld, A. J. 2010. "Middlemen in Limit-Order Markets." Accessed on December 10, 2015. http://papers.ssrn.com/sol3/papers.cfm?abstract-id=1624329
31. Kane, E. J. 1997. "Ethical Foundations of Financial Regulation." Journal of Financial Services Research 12: 51-74.
32. Kearns, M., Kulesza, A., Nevmyvaka, Y. 2010. "Empirical Limitations on High Frequency Trading Profi tability." Journal of Trading 5: 50-62.
33. Kumiega, A., Neururer, T., Van Vliet, B. 2014. "Trading System Capability." Quantitative Finance 14: 383-392.
34. Kyle, A. S., Viswanathan, S. 2008. "How to Defi ne Illegal Price Manipulation." American Economic Review: Papers & Proceedings. Accessed on December 10, 2015. http://w4.stern.nyu.edu/fi nance/docs/pdfs/Seminars/081m-kyleviswanathan.pdf
35. Lewis, M. 2014. Flash Boys: A Wall Street Revolt. New York: W. W. Norton & Company.
36. Longstreth, B. 1986. Modern Investment Management and the Prudent Man Rule. Oxford: Oxford University Press.
37. Massachusetts, State of, Harvard College v. Armory. 26 Mass (9 Pick) 446. 1830.
38. Mele, A. 2001. Self-Deception Unmasked. Princeton, NJ: Princeton University Press.
39. Menkveld, A. J. 2013. "High Frequency Trading and the New Market Makers." Journal of Financial Markets 16: 712-740.
40. Moor, J. H. 2006. "The Nature, Importance, and Diffi culty of Machine Ethics." Intelligent Systems 21: 18-21.
41. Nielsen, R. P. 2010. "High-Leverage Finance Capitalism, the Economic Crisis, Structurally Related Ethics Issues, and Potential Reforms." Business Ethics Quarterly 20: 299-330.
42. Roll, R. 1984. "A Simple Implicit Measure of the Effective Bid-Ask Spread in an Effi cient Market." Journal of Finance 39: 1127-1139.
43. Rosenburgh, M., Spieler, A. C. 2009. "21st Century Pensions: The Risk, the Hedge and the Duty to Consider." Journal of International Business and Law 8: 45.
44. Ryan, L. V., Buchholtz, A. K., Kolb, R. W. 2010. "New Directions in Corporate Governance and Finance: Implications for Business Ethics Research." Business Ethics Quarterly, 20: 673-694.
45. Stoll, H. R. 2006. "Electronic Trading in Stock Markets." Journal of Economic Perspectives 20: 153-174.
46. Unger, S. H. 1994. Controlling Technology: Ethics and the Responsible Engineer. New York: John Wiley & Sons.
47. U.S. Securities and Exchange Commission (SEC). 2014. "Best Execution." Accessed on December 10, 2015. www.sec.gov/answers/bestex.htm
48. Whaley, B. 1982. "Toward a General Theory of Deception." Journal of Strategic Studies 5: 178-192.
49. Zhang, Y. C. 1999. "Toward a Theory of Marginally Effi cient Markets." Physica A: Statistical Mechanics and Its Applications 269: 30-44.