High frequency trading and extreme price movements

Jonathan Brogaard, Allen Carrion, Thibaut Moyaert, Ryan Riordan, Andriy Shkilko and Konstantin Sokolov

Journal of Financial Economics, 2018, vol. 128, issue 2, 253-265

Abstract: Are endogenous liquidity providers (ELPs) reliable in times of market stress? We examine the activity of a common ELP type—high frequency traders (HFTs)—around extreme price movements (EPMs). We find that on average HFTs provide liquidity during EPMs by absorbing imbalances created by non-high frequency traders (nHFTs). Yet HFT liquidity provision is limited to EPMs in single stocks. When several stocks experience simultaneous EPMs, HFT liquidity demand dominates their supply. There is little evidence of HFTs causing EPMs.

JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (49)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:128:y:2018:i:2:p:253-265

DOI: 10.1016/j.jfineco.2018.02.002

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