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 in Emerging Economies: A Case Study of the Indian Stock Market

Authors: Mandavi Sharma

Published: 2025-05-02 11:25:35.271

Download PDF

Abstract

This paper investigates the impact of algorithmic trading (AT) on market efficiency and price discovery in the Indian stock market, an emerging economy context. We employ econometric techniques to analyze high-frequency data from the National Stock Exchange (NSE) to assess the relationship between AT activity, market liquidity, price volatility, and information dissemination. Our findings suggest that while AT can enhance liquidity and contribute to faster price discovery under certain conditions, it can also exacerbate volatility and increase information asymmetry, particularly during periods of market stress. The study contributes to the ongoing debate surrounding the role of AT in financial markets and provides valuable insights for policymakers and regulators in emerging economies seeking to harness the benefits of technological advancements while mitigating potential risks. The research goes beyond previous studies by examining the nuanced effects of various AT strategies and their interplay with market microstructure features specific to the Indian context.

Keywords

Algorithmic Trading, Market Efficiency, Price Discovery, Emerging Markets, Indian Stock Market, High-Frequency Trading, Information Asymmetry, Market Volatility, Liquidity, Econometrics.

References

  2. Brogaard, J. (2010). High frequency trading and its impact on market quality. Review of Financial Studies, 23(4), 1456-1498.
  3. 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.
  4. Easley, D., & O'Hara, M. (1987). Price, trade size, and information in securities markets. Journal of Financial Economics, 19(1), 81-110.
  5. Glosten, L. R., & Milgrom, P. R. (1985). Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics, 14(1), 71-100.
  6. Hendershott, T., Jones, C. M., & Menkveld, A. J. (2011). Does algorithmic trading improve liquidity?. Journal of Finance, 66(1), 1-33.
  7. Kirilenko, 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.
  8. Kyle, A. S. (1985). Continuous auctions and insider trading. Econometrica, 53(6), 1315-1335.
  9. O'Hara, M. (1995). Market microstructure theory. Blackwell.
  10. Stoimenov, P., & Nikolov, R. (2017). Algorithmic trading and market quality: Evidence from the Bulgarian stock market. Emerging Markets Finance and Trade, 53(11), 2541-2558.
  11. Zhang, Y., & Chung, K. H. (2016). High-frequency trading and market quality: Evidence from the Chinese stock market. Pacific-Basin Finance Journal, 38, 1-15.
  12. Hasbrouck, J. (1995). Measuring the information content of stock trades. The Journal of Finance, 50(1), 179-207.
  13. Stoll, H. R. (2006). Electronic trading in stock markets. Journal of Economic Perspectives, 20(1), 153-174.
  14. Madhavan, A. (2000). Market microstructure: A survey. Journal of Financial Markets, 3(3), 205-258.
  15. Boehmer, E., Fong, K. Y., & Wu, J. (2018). Does algorithmic trading improve efficiency? Journal of Financial Economics, 130(3), 652-672.
  16. Menkveld, A. J. (2013). High-frequency trading and the execution costs of institutional investors. The Review of Financial Studies, 26*(7), 1656-1686.
Download PDF

How to Cite

Mandavi Sharma, (2025-05-02 11:25:35.271). The Impact of Algorithmic Trading on Market Efficiency and Price Discovery in Emerging Economies: A Case Study of the Indian Stock Market. 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.