Slow-moving capital and execution costs: Evidence from a major trading glitch

Vincent Bogousslavsky, Pierre Collin-Dufresne and Mehmet Sağlam

Journal of Financial Economics, 2021, vol. 139, issue 3, 922-949

Abstract: We investigate the impact of an exogenous trading glitch at a high-frequency market-making firm on standard measures of stock liquidity (spreads, price impact, turnover, and depth) and institutional trading costs (implementation shortfall and volume-weighted average price slippage). Stocks in which the firm accumulates large long (short) positions increase (decrease) by about 4% during the glitch and become substantially more illiquid. It takes one day for prices and spread-based liquidity measures to revert. Institutional trading costs, however, remain significantly higher for more than one week. Both liquidity measures are also weakly correlated outside the glitch period, suggesting they capture different aspects of liquidity.

Keywords: Slow-moving capital; Market making; Liquidity; Algorithmic trading; Institutional trading costs (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:139:y:2021:i:3:p:922-949

DOI: 10.1016/j.jfineco.2020.08.009

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