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Judgement Day: Algorithmic Trading Around the Swiss Franc Cap Removal

Francis Breedon (), Louisa Chen, Angelo Ranaldo () and Nicholas Vause ()

No 1808, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: A key issue raised by the rapid growth of computerised algorithmic trading is how it responds in extreme situations. Using data on foreign exchange orders and transactions that includes identification of algorithmic trading, we find that this type of trading contributed to the deterioration of market quality following the removal of the cap on the Swiss franc on 15 January 2015, which was an event that came as a complete surprise to market participants. In particular, we find that algorithmic traders withdrew liquidity and generated uninformative volatility in Swiss franc currency pairs, while human traders did the opposite. However, we find no evidence that algorithmic trading propagated these adverse effects on market quality to other currency pairs.

Keywords: Swiss franc; algorithmic trading; liquidity; volatility; price discovery; arbitrage opportunities (search for similar items in EconPapers)
JEL-codes: G14 G23 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2018-02
New Economics Papers: this item is included in nep-eur and nep-mst
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http://ux-tauri.unisg.ch/RePEc/usg/sfwpfi/WPF-1808.pdf (application/pdf)

Related works:
Working Paper: Judgment Day: Algorithmic Trading Around The Swiss Franc Cap Removal (2019) Downloads
Working Paper: Judgement Day: algorithmic trading around the Swiss franc cap removal (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2018:08

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