Proprietary algorithmic traders and liquidity supply during the pandemic

Anirban Banerjee and Samarpan Nawn

Finance Research Letters, 2024, vol. 61, issue C

Abstract: This study documents the liquidity-supplying behavior of proprietary algorithmic traders during the abrupt and sustained market decline caused by the COVID-19 outbreak. The findings suggest that these endogenous liquidity providers reduced their supply of liquidity during sustained market stress that lasted several days. Proprietary algorithmic traders showed a greater propensity to trade via market orders, reduced the fraction of contrarian trades, and reduced their share of order book depth compared to other traders during the in-COVID period. Our work provides the first direct evidence of the behavior of proprietary algorithmic traders during the pandemic.

Keywords: Market microstructure; HFT; Liquidity crisis; Passivity (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:61:y:2024:i:c:s1544612324000825

DOI: 10.1016/j.frl.2024.105052

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