Does High Frequency Market Manipulation Harm Market Quality?

Prof. Dan LI
Associate Professor of Finance
Chinese University of Hong Kong, Shenzhen

Date: 10 April 2024(Wednesday)
Time: 14:30 to 15:30 pm
Venue: E22 – G008
Moderator: Prof. Rachel Xiaorong MA, Assistant Professor of Finance


Manipulation of financial markets has long been a concern. With the automation of financial markets, the potential for high frequency market manipulation has arisen. Yet, such behavior is hidden within vast sums of order book data, making it difficult to define and to detect. We develop a tangible definition of one type of manipulation, spoofing. Using proprietary user-level identified order book data, we show the determinants of spoofing. Exploiting lagged spoofing profitability and SEC Litigation Releases as instruments, we show causal evidence that spoofing increases return volatility, increases trading costs, and decreases price efficiency. The findings indicate that spoofing harms liquidity and price discovery.


Professor Dan Li is an associate professor in finance at the Chinese University of Hong Kong, Shenzhen. Her research lies at the intersection of market microstructure and corporate finance with a focus on high frequency trading, capital market, liquidity, and entrepreneurship. She has published papers in Journal of Financial Economics, Review of Financial Studies, Journal of Banking and Finance and etc. She has also published in the Wall Street Journal and Global Trading, the official magazine of the FIX Protocol. Prior to joining the CUHK Shenzhen, she was an assistant professor in finance at the University of Hong Kong between 2011 and 2018.  Between 2009 and 2011 she served as an in-house researcher for the Investment Industry Regulatory Organization of Canada (IIROC), the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada.

All are welcome!