Graduation Year

2016

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Sean Flynn

Reader 2

Roberto Pedace

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Terms of Use for work posted in Scholarship@Claremont.

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© 2015 Rosalie Frazier

Abstract

The major purpose of this study is to explore the stock movements of a publicly traded high-frequency trading firm, Virtu Financial. Virtu Financial, as of November 2015, is the only publicly traded high frequency trading firm, offering a opportunity to study the market behavior of a new kind of stock. Since Virtu serves as a unique financial intermediary, my hypothesis is that Virtu should be a market-neutral company since it is able to profit equally in economic upswings and downturns. This study uses a regression based on the Fama and French three factor model, focusing on the influence of the market risk premium, small sized company vs. medium sized company returns, and growth stock vs. value stock returns in changes in inter-daily Virtu Financial returns, These results are then compared to the returns of Virtu’s brokerage competitors, as deemed so by analysts, and CBOE Holding, a company with . The results suggest that Virtu Financial has a market neutral stock, consistent with its means of generating revenue, while its traditional brokerage competitors do not. On the basis of this research, it is concluded that HFT brokerages may present an opportunity to invest in a non-cylcical segment of the finance industry.

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