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High-frequency trading, stock volatility, and intraday crashes

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  • Ben Ammar, Imen
  • Hellara, Slaheddine

Abstract

We examine the effect of high-frequency trading (HFT) on the price volatility of Euronext-listed stocks. Under stable market conditions, greater HFT intensity is associated with decreased stock price volatility. However, during periods of intraday crashes, rapid interactions between HFT algorithms lead to high rates of order cancellations and simultaneous withdrawals of high-frequency traders from the limit order book. High-frequency traders submit aggressive orders during these periods and consume more liquidity than they provide, resulting in increased stock price volatility.

Suggested Citation

  • Ben Ammar, Imen & Hellara, Slaheddine, 2022. "High-frequency trading, stock volatility, and intraday crashes," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 337-344.
    • Handle: RePEc:eee:quaeco:v:84:y:2022:i:c:p:337-344
    DOI: 10.1016/j.qref.2022.03.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Algorithmic trading; High-frequency trading; Market microstructure; Stock volatility; Intraday crashes;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other

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