High-Frequency Trading and Its Impact on Exogenous Liquidity Risk of China’s Stock Index Futures Market before and after Trading Restrictions

GuangWei Shi and Yun Chen

Complexity, 2020, vol. 2020, 1-11

Abstract:

Since China’s first stock index futures, China Securities Index 300 (CSI300) stock index futures were published in 2010, and China’s stock index futures market is now in a period of rapid development and play a key role in price discovery. During 2014 to 2015, China’s stock index futures market fluctuated abnormally, and the overuse of high-frequency trading (HFT) strategies in the stock index futures market was blamed as the main reason of the abnormal volatility. To lower down market fluctuation, the regulatory institute then announced a series of trade restriction policy to prevent the overuse of HFT behaviour. However, until now, the impact of such trade restriction policy for HFT remains uncertain. To tackle this issue, based on minute-level HFT data from the CSI 300 index futures market, this paper aims to investigate the relationship between HFT and the exogenous liquidity risk and how HFT affects China’s stock index futures market on its liquidity using the liquidity-adjusted value at risk (LVaR) model. The findings indicate that HFT improves the return of the liquidity provider and reduces the exogenous liquidity risk significantly.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:hin:complx:9192841

DOI: 10.1155/2020/9192841

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