Multiple markets, algorithmic trading, and market liquidity

James Upson and Robert A. Van Ness

Journal of Financial Markets, 2017, vol. 32, issue C, 49-68

Abstract: Using a sample of NYSE firms from the first quarter of 2012, we show that the National Best Bid and Offer (NBBO) depth is negatively affected by quote competition between exchanges and by excess algorithmic trading (AT) activity, but positively impacted by volume fragmentation. Trade execution quality also decreases with higher quote competition and AT activity but is better with higher volume fragmentation. In addition, we find that the U-shaped pattern of spreads is an S-shape, with higher spreads at the open and lower spreads at the close. NBBO depth has an inverse pattern to that of spreads.

Keywords: Algorithmic traders; High-frequency traders; HFT; Market liquidity; Intraday liquidity; Latency (search for similar items in EconPapers)
JEL-codes: G12 G15 G24 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:32:y:2017:i:c:p:49-68

DOI: 10.1016/j.finmar.2016.05.004

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