Microstructure of Stock Exchanges: Evidence from High-Frequency Trading

Authors

  • Bilal Khan Department of Finance, Lahore University of Management Sciences (LUMS), Lahore, Pakistan Author

DOI:

https://doi.org/10.71465/hjmri.256

Keywords:

Market Microstructure, High-Frequency Trading, Stock Exchanges, Liquidity and Volatility

Abstract

The microstructure of stock exchanges significantly affects market efficiency, liquidity,

 

and price formation. With the advent of high-frequency trading (HFT), the landscape of market microstructure has undergone dramatic changes, especially in developing economies. This paper examines the impact of high-frequency trading on the microstructure of Pakistan’s stock market. By analyzing transaction-level data from the Pakistan Stock Exchange (PSX) between 2015 and 2024, we assess how HFT affects liquidity, volatility, bid-ask spreads, and market depth. The findings reveal that high-frequency trading improves market liquidity and tightens bid-ask spreads, but also introduces challenges such as increased volatility and potential for market manipulation. The study concludes with recommendations for improving market structure and regulatory frameworks to better accommodate HFT in Pakistan’s emerging financial markets.

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Published

2024-08-12

Issue

Vol. 4 No. 8 (2024): Holistic Journal of Multidisciplinary Research Innovation

Section

Articles

License

Creative Commons License

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