Commonality and contrarian trading among algorithmic traders

Abstract

Abstract We examine the trading behavior of two heterogeneous groups of Algorithmic Traders (ATs), namely High-Frequency Traders (HFTs) and Buy-side Algorithmic Traders (BATs). We find that these two groups exhibit within-group and between-group commonality in trading volumes, wherein within-group commonality of BATs is higher than that of HFTs. Also, there exists within-group commonality in directional measures of trade execution. We find new evidence of between-group contrarian trading behavior, which is more pronounced among BATs than HFTs. The presence of within-group commonality and between-group contrarian trading among ATs ensures market stability and price discovery.