Message traffic and short-term illiquidity in high-speed markets

David Abad, Magdalena Massot, Samarpan Nawn, Roberto Pascual and José Yagüe

Emerging Markets Review, 2025, vol. 65, issue C

Abstract: We examine which components of message traffic in a high-speed equity market, including orders from traders with varying technological capabilities, signal short-term illiquidity. Our findings show that only the unexpected component of high-frequency traders' (HFTs') net buying pressure — arising from both aggressive and non-aggressive orders — predicts increases in immediacy costs and price impacts. Updates to outstanding limit orders, driven by prior efficient pre returns, strengthen the signaling power of HFTs' order flow. Additionally, market-wide HFTs' net buying pressure improves the ability to forecast short-term illiquidity in individual stocks.

Keywords: Order flow; HFT; Limit orders; Market orders; Cancellations; Toxicity (search for similar items in EconPapers)
JEL-codes: G10 G11 G14 G15 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:65:y:2025:i:c:s1566014124001468

DOI: 10.1016/j.ememar.2024.101251

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