ISSN: 3048-622X
JANOLI International Journal of
Economics and Management Science ( JIJEMS )
Login/Register
For Reference
About Journal Aim and Scope Editorial Board Publication Ethics Indexing And Abstracting Peer Review Process About Journal Aim and Scope Editorial Board Publication Ethics Indexing And Abstracting Peer Review Process

The Impact of Algorithmic Trading on Market Efficiency and Price Discovery: Evidence from Emerging Economies

Authors: Rachna Sharma

Published: 2025-05-02 11:19:14.347

Download PDF

Abstract

This paper investigates the impact of algorithmic trading (AT) on market efficiency and price discovery in emerging economies. We analyze intraday trading data from a select emerging market stock exchange to assess the effects of AT on various market microstructure measures, including price volatility, liquidity, order imbalance, and price discovery contributions. Our methodology involves a combination of event study analysis and regression models to isolate the effects of AT adoption and intensity. The results indicate that while AT generally improves liquidity and price discovery, it can also contribute to increased volatility, particularly during periods of high market stress. Furthermore, the impact of AT is contingent on the regulatory environment and the level of technological infrastructure in each specific emerging market. We conclude with policy recommendations aimed at maximizing the benefits of AT while mitigating its potential risks.

Keywords

Algorithmic Trading, Market Efficiency, Price Discovery, Emerging Markets, High-Frequency Trading, Volatility, Liquidity, Order Imbalance, Intraday Analysis

References

  2. O’Hara, M. (1995). Market Microstructure Theory. Blackwell Publishing.
  3. Hasbrouck, J. (1995). One security, many markets: Determining the contributions to price discovery. Journal of Finance, 50(4), 1175-1199.
  4. Stoll, H. R. (2006). Electronic Trading in Stock Markets. Journal of Economic Perspectives, 20(1), 153-174.
  5. Hendershott, T., Jones, C. M., & Menkveld, A. J. (2011). Does algorithmic trading improve liquidity?. Journal of Finance, 66(1), 1-33.
  6. Brogaard, J. (2010). High-frequency trading and its impact on market quality. Review of Financial Studies, 23(4), 1456-1490.
  7. Chaboud, A. P., Chiquoine, B., Hjalmarsson, E., & Vega, C. (2014). Rise of the machines: Algorithmic trading in the foreign exchange market. Journal of Finance, 69(5), 2045-2084.
  8. Kirilenko, A. A., Kyle, A. S., Samadi, M., & Tuzun, T. (2017). The flash crash: High-frequency trading in an electronic market. Journal of Finance, 72(3), 967-998.
  9. Zhang, M. (2010). Algorithmic trading and market quality: Evidence from the Chinese stock market. Pacific-Basin Finance Journal, 18(5), 521-536.
  10. Menkveld, A. J. (2013). High frequency trading and the limit order book. Management Science, 59(7), 1660-1676.
  11. Carrion, R. T. (2013). High-frequency trading and intraday volatility. Journal of Financial Markets, 16(1), 1-23.
  12. Easley, D., López de Prado, M. M., & O’Hara, M. (2012). Flow toxicity and liquidity in a high-frequency world. Review of Financial Studies, 25(5), 1435-1472.
  13. Boehmer, E., Fong, K., & Wu, J. (2012). Does algorithmic trading improve efficiency? Journal of Financial Economics, 104(3), 632-654.
  14. Baron, M. E., Brogaard, J., Hagströmer, B., & Kirilenko, A. (2012). Risk, return, and trading strategies of high-frequency traders. Financial Analysts Journal, 68(5), 78-95.
  15. Jones, C. M. (2013). What do we know about high-frequency trading?. SSRN Electronic Journal.
  16. Gomber, P., Arndt, M., Lutat, M., & Uhle, A. (2011). High-frequency trading. Journal of Trading, 6(2), 12-25.
Download PDF

How to Cite

Rachna Sharma, (2025-05-02 11:19:14.347). The Impact of Algorithmic Trading on Market Efficiency and Price Discovery: Evidence from Emerging Economies. JANOLI International Journal of Economics and Management Science , Volume MejgkunYNoDF1a6qqjpe, Issue 3.

Follow Us
Get In Touch

Vitthal Namdev Nagar, Opp Jain Temple Sanganer Sanganer Bazar Jaipur 302029 Rajasthan (India)

mail@janolijournals.org

© JANOLI International Journal. All Rights Reserved.