EconPapers    
Economics at your fingertips  
 

Algos gone wild: What drives the extreme order cancellation rates in modern markets?

Marta Khomyn and Talis Putnins

Journal of Banking & Finance, 2021, vol. 129, issue C

Abstract: 97% of orders in US stock markets are cancelled before they trade, straining market infrastructure and raising concerns about predatory or manipulative trading. To understand the drivers of these extreme cancellation rates, we develop a simple model of liquidity provision and find that growth in order-to-trade ratios (OTTRs) is driven by fragmentation of trading and technological improvements that lower monitoring costs. High OTTRs occur legitimately in stocks with high volatility, fragmented trading, small tick sizes, and low volume. OTTRs are usually within levels consistent with market making, but occasionally spike to levels that may indicate illegitimate trading such as spoofing.

Keywords: Order-to-trade ratio; Market fragmentation; Regulation; Liquidity; HFT (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426621001291
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:129:y:2021:i:c:s0378426621001291

DOI: 10.1016/j.jbankfin.2021.106170

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-08-26
Handle: RePEc:eee:jbfina:v:129:y:2021:i:c:s0378426621001291