Judgment day: Algorithmic trading around the Swiss franc cap removal
Angelo Ranaldo and
Journal of International Economics, 2023, vol. 140, issue C
A key issue for decentralised markets like FX is how the market responds to extreme situations. Using data on FX transactions with a precise identification of Algorithmic trading (AT), we find that AT, broadly defined, appears to have contributed to the deterioration of market quality following the removal of the cap on the Swiss franc on 15 January 2015 by withdrawing liquidity and generating uninformative volatility. We also find that the Swiss National Bank, after initially stepping aside, played an important role, though more by signalling rather than trading. This perhaps explains why human trading – that could most easily interpret those signals – was important in stabilising the market.
Keywords: Algorithmic trading; Swiss franc; Market liquidity; Price efficiency; Central bank intervention (search for similar items in EconPapers)
JEL-codes: G14 G23 (search for similar items in EconPapers)
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Working Paper: Judgment Day: Algorithmic Trading Around The Swiss Franc Cap Removal (2019)
Working Paper: Judgement Day: algorithmic trading around the Swiss franc cap removal (2018)
Working Paper: Judgement Day: Algorithmic Trading Around the Swiss Franc Cap Removal (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:140:y:2023:i:c:s0022199622001453
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