We propose a state-space modeling approach for decomposing trading volume into its liquidity-driven and information-driven components. Using a set of high-frequency S&P 500 stock data, we show that informed trading is linked with a reduction in volatility, illiquidity, and toxicity/adverse...

Based on granular NASDAQ HFT data, we find that HFT activity in the stock market increases market-making costs in the options markets via two channels: the hedging channel and the arbitrage channel. HFTs' liquidity-demanding orders increase the hedging costs due to a higher stock bid-ask spread...