According to Bloomberg, high frequency trading is a wonderful subject for study because nobody agrees on what would make it Good or Bad. So academics and practitioners can write papers about how it is Good, or how it is Bad, and they don’t particularly contradict each other because they measure different things and the actual thing that one wants to measure is hard to nail down and would probably be hard to measure even if you knew what it was.
So here we are with an interesting European Central Bank working paper from Jonathan Brogaard, Terrence Hendershott and Ryan Riordan about high frequency trading.* They’re mostly for it, which has naturally gotten them some attention. They think that the things you should measure are along the lines of “does high frequency trading improve market price discovery?” and “does it provide liquidity?” and I guess if they thought it was Bad, they’d be asking different questions. But they answer yes to their questions: They find that high frequency trading improves price discovery, and that it does not cause instability by withdrawing liquidity during volatile periods.