Limit order placement by high-frequency traders

Avanidhar Subrahmanyam and Hui Zheng

Borsa Istanbul Review, 2016, vol. 16, issue 4, 185-209

Abstract: The effectiveness of liquidity provision by HFT firms is an unexplored but central policy issue. Using unique data consisting of limit order placement, execution, and cancellations, we find that HFT firms do not cancel orders more frequently than non-HFT firms. HFT firms more effectively use order cancellation to strategically manage their limit orders in anticipation of short-term price movements than non-HFT firms. HFT firms increase their liquidity provision during high volatility periods; their liquidity provision is less affected by order imbalance shocks than that of non-HFT firms. Overall, our results indicate that HFT limit orders exert a stabilizing influence.

JEL-codes: G14 G20 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:bor:bistre:v:16:y:2016:i:4:p:185-209

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