The ambivalent role of high-frequency trading in turbulent market periods

Nikolaus Hautsch, Michael Noé and S. Sarah Zhang

No 580, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: We show an ambivalent role of high-frequency traders (HFTs) in the Eurex Bund Futures market around high-impact macroeconomic announcements and extreme events. Around macroeconomic announcements, HFTs serve as market makers, post competitive spreads, and earn most of their profits through liquidity supply. Right before the announcement, however, HFTs significantly widen spreads and cause a rapid but short-lived drying-out of liquidity. In turbulent periods, such as after the U.K. Brexit announcement, HFTs shift their focus from market making activities to aggressive (but not necessarily profitable) directional strategies. Then, HFT activity becomes dominant and market quality can degrade.

Keywords: High Frequency Trading; Market Making; News Releases; Futures Market; Brexit (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:580

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