DOES SPEED MATTER? THE ROLE OF HIGH‐FREQUENCY TRADING FOR ORDER BOOK RESILIENCY

Benjamin Clapham, Martin Haferkorn and Kai Zimmermann

Journal of Financial Research, 2020, vol. 43, issue 4, 933-964

Abstract: We analyze limit order book resiliency following liquidity shocks initiated by large market orders. Based on a unique data set, we investigate whether high‐frequency traders are involved in replenishing the order book. Therefore, we relate the net liquidity provision of high‐frequency traders, algorithmic traders, and human traders around these market impact events to order book resiliency. Although all groups of traders react, our results show that only high‐frequency traders reduce the spread within the first seconds after the market impact event. Order book depth replenishment, however, takes significantly longer and is mainly accomplished by human traders’ liquidity provision.

Date: 2020
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