High-frequency trading and stock liquidity: An intraday analysis

Imen Ben Ammar, Slaheddine Hellara and Imen Ghadhab

Research in International Business and Finance, 2020, vol. 53, issue C

Abstract: This paper studies the impact of high-frequency trading (HFT) on intraday liquidity of CAC40 stocks listed on Euronext. Spreads display an intraday L-shaped pattern, while quoted depth follows an inverse pattern: low at the open and increasing towards the end of the trading day. When liquidity demand is particularly high, there is a high rate of order cancellations attributable to high-frequency traders who use frequent order cancellations to strategically manage their limit orders and close positions near the market close. Using the generalized method of moments estimator, we generate strong evidence that greater intensity of HFT is associated with lower spreads and higher depth. The positive effect of HFT on liquidity is due mainly to decreased adverse selection costs arising from asymmetric information among market participants.

Keywords: High-frequency trading; Algorithmic trading; Market microstructure; Intraday liquidity (search for similar items in EconPapers)
JEL-codes: G12 G14 G19 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:53:y:2020:i:c:s0275531919309249

DOI: 10.1016/j.ribaf.2020.101235

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