 The effect of algorithmic trading on market liquidity: Evidence around earnings announcements on Borsa ItalianaAlex Frino, Vito Mollica, Eleonora Monaco and Riccardo Palumbo Pacific-Basin Finance Journal, 2017, vol. 45, issue C, 82-90 Abstract: This paper examines the impact of algorithmic trading (AT) on market liquidity around periods of high information asymmetry when available liquidity is more valuable. We identify the implementation of proximity hosting services by Borsa Italiana, that are expected to increase AT, in order to examine the behaviour of liquidity around earnings announcements in pre- and post-AT periods. Consistent with previous research, we find that bid-ask spreads widen and market depth falls following earnings announcements in the pre-AT period. However, in the post-AT period, while we find a similar pattern in bid-ask spreads, we find no evidence of a significant fall in market depth. We also find firms that experience the largest increase in AT from pre- to post-AT periods, exhibit lower bid-ask spreads and greater depth following earnings announcements. We conclude that AT improves market liquidity by increasing the resiliency of markets around periods of high information asymmetry, specifically around earnings announcements. Keywords: Algorithmic traders; Market liquidity; Earnings announcements (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:45:y:2017:i:c:p:82-90 DOI: 10.1016/j.pacfin.2016.07.003 Access Statistics for this article Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee More articles in Pacific-Basin Finance Journal from Elsevier |
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