High frequency trading and extreme price movements / by Jonathan Brogaard, Allen Carrion, Thibaut Moyaert, Ryan Riordan, ... Konstantin Sokolov
High frequency trading and extreme price movements / by Jonathan Brogaard, Allen Carrion, Thibaut Moyaert, Ryan Riordan, ... Konstantin Sokolov
Jonathan Brogaard, Allen Carrion, Thibaut Moyaert, Ryan Riordan, ... Konstantin Sokolov
- Amsterdam Elsevier May 2018
- Pages 253-265
- Journal of Financial Economics 128 (2) 0304-405X .
Abstract
Are endogenous liquidity providers (ELPs) reliable in times of market stress? We examine the activity of a common ELP type—high frequency traders (HFTs)—around extreme price movements (EPMs). We find that on average HFTs provide liquidity during EPMs by absorbing imbalances created by non-high frequency traders (nHFTs). Yet HFT liquidity provision is limited to EPMs in single stocks. When several stocks experience simultaneous EPMs, HFT liquidity demand dominates their supply. There is little evidence of HFTs causing EPMs.
0304-405X
Abstract
Are endogenous liquidity providers (ELPs) reliable in times of market stress? We examine the activity of a common ELP type—high frequency traders (HFTs)—around extreme price movements (EPMs). We find that on average HFTs provide liquidity during EPMs by absorbing imbalances created by non-high frequency traders (nHFTs). Yet HFT liquidity provision is limited to EPMs in single stocks. When several stocks experience simultaneous EPMs, HFT liquidity demand dominates their supply. There is little evidence of HFTs causing EPMs.
0304-405X