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High frequency trading and extreme price movements

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Listed:
  • Brogaard, Jonathan
  • Carrion, Allen
  • Moyaert, Thibaut
  • Riordan, Ryan
  • Shkilko, Andriy
  • Sokolov, Konstantin

Abstract

Are endogenous liquidity providers (ELPs) reliable in times of market stress? We examine the activity of a common ELP type—high frequency traders (HFTs)—around extreme price movements (EPMs). We find that on average HFTs provide liquidity during EPMs by absorbing imbalances created by non-high frequency traders (nHFTs). Yet HFT liquidity provision is limited to EPMs in single stocks. When several stocks experience simultaneous EPMs, HFT liquidity demand dominates their supply. There is little evidence of HFTs causing EPMs.
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Suggested Citation

  • Brogaard, Jonathan & Carrion, Allen & Moyaert, Thibaut & Riordan, Ryan & Shkilko, Andriy & Sokolov, Konstantin, 2018. "High frequency trading and extreme price movements," LIDAM Reprints LFIN 2018009, Université catholique de Louvain, Louvain Finance (LFIN).
    • Handle: RePEc:ajf:louvlr:2018009
    Note: In : Journal of Financial Economics, Vol. 128, no. 2, p. 253-265 (2018)
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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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