High Frequency Trading in the Equity Markets During U.S. Treasury POMO

Cheng Gao and Bruce Mizrach
Additional contact information
Cheng Gao: Rutgers University

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: We analyze high frequency trading (HFT) activity in equities during U.S. Treasury permanent open market (POMO) purchases by the Federal Reserve. We construct a model to study HFT quote and trade behavior when private information is released and confirm it empirically. We estimate that HFT firms reduce their inside quote participation by up to 8% during POMO auctions. HFT firms trade more aggressively, and they supply less passive liquidity to non-HFT firms. Market impact also rises during Treasury POMO. Aggressive HFT trading becomes more consistently profitable, and HFT firms earn a higher return per share. We also estimate that HFT firms earn profits of over $105 million during U.S. Treasury POMO events.

Keywords: high frequency trading; Federal Reserve; open market operations; private information (search for similar items in EconPapers)
JEL-codes: G12 G21 G24 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2013-07-16
New Economics Papers: this item is included in nep-cta and nep-mst
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2294038

Related works:
Chapter: High Frequency Trading in the Equity Markets During US Treasury POMO (2018)
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:rut:rutres:201320

Access Statistics for this paper

More papers in Departmental Working Papers from Rutgers University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().