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High Frequency Trading in the Equity Markets During U.S. Treasury POMO


Author Info

  • Cheng Gao

    (Rutgers University)

  • Bruce Mizrach

    (Rutgers University)


We analyze high frequency trading (HFT) activity in equities during U.S. Treasury permanent open market (POMO) purchases by the Federal Reserve. We construct a model to study HFT quote and trade behavior when private information is released and confirm it empirically. We estimate that HFT firms reduce their inside quote participation by up to 8% during POMO auctions. HFT firms trade more aggressively, and they supply less passive liquidity to non-HFT firms. Market impact also rises during Treasury POMO. Aggressive HFT trading becomes more consistently profitable, and HFT firms earn a higher return per share. We also estimate that HFT firms earn profits of over $105 million during U.S. Treasury POMO events.

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Bibliographic Info

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 201320.

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Length: 20 pages
Date of creation: 16 Jul 2013
Date of revision:
Handle: RePEc:rut:rutres:201320

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Related research

Keywords: high frequency trading; Federal Reserve; open market operations; private information;

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