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Judgment Day: Algorithmic Trading Around The Swiss Franc Cap Removal

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

No 1912, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: A key issue raised by the growth of algorithmic trading (AT) is how it responds in extreme situations. Using data on foreign exchange (FX) with a precise identification of AT, we find that AT contributed to the deterioration of market quality following the removal of the cap on the Swiss franc on 15 January 2015. Algorithmic traders withdrew market liquidity and generated uninformative volatility, both outside and during periods of perceived central bank intervention. We find that agency algorithms run by banks—rather than proprietary algorithms run by high-frequency traders—were particularly detrimental for market quality.

Keywords: Algorithmic trading; Swiss franc; market liquidity; price efficiency; central bank intervention. (search for similar items in EconPapers)
JEL-codes: G14 G23 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2019-07
New Economics Papers: this item is included in nep-mst
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http://ux-tauri.unisg.ch/RePEc/usg/sfwpfi/WPF-1912.pdf (application/pdf)

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Working Paper: Judgement Day: algorithmic trading around the Swiss franc cap removal (2018) 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:2019:12

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