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High-frequency trading in the Bund futures market

Kathi Schlepper

No 15/2016, Discussion Papers from Deutsche Bundesbank

Abstract: In this work, I study the impact of high-frequency trading (HFT) on price discovery and volatility in the Bund futures market. Using a new dataset based on microseconds, the focus of the study is on the reaction of high-frequency traders (HFTs) to major macroeconomic news events. I show that through their fast and strong reaction to news, HFTs contribute more to price discovery compared to Non-HFTs, but also add a higher share to noise than to permanent volatility. Moreover, I find evidence that HFTs tend to supply less liquidity after an unexpected rise in market volatility and prior to upcoming macroeconomic news events. These findings suggest that in times of high market stress, HFT behavior may exacerbate intraday price volatility and amplify the risk of market disruptions in fixed income markets.

Keywords: High-Frequency Trading; Price Discovery; Volatility (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-mst and nep-net
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:152016

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