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Do high-frequency fleeting orders exacerbate market illiquidity?

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  • Kun Li

    () (Beijing Normal University)

Abstract

This paper investigates whether fleeting orders account for market illiquidity. By discussing relevant trading strategies, our study suggests that fleeting orders serve for market making and contribute to market liquidity. Moreover, fleeting orders do not distort price accuracy and are not the outcome of illegal manipulation. We then empirically examine fleeting orders using a NASDAQ ITCH dataset. Our results indicate that fleeting orders have very small effects on market illiquidity and account for neither the amplification of price impact nor the decrease of revenues to liquidity providers. In summary, fleeting orders are not the trigger of market illiquidity and thus should not be considered as “spoofing” defined by the Dodd–Frank Act.

Suggested Citation

  • Kun Li, 2018. "Do high-frequency fleeting orders exacerbate market illiquidity?," Electronic Commerce Research, Springer, vol. 18(2), pages 241-255, June.
    • Handle: RePEc:spr:elcore:v:18:y:2018:i:2:d:10.1007_s10660-017-9273-8
    DOI: 10.1007/s10660-017-9273-8
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    References listed on IDEAS

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