Abstract

http://ssrn.com/abstract=2294038
 
 

References (22)



 


 



High Frequency Trading in the Equity Markets During US Treasury POMO


Cheng Gao


Rutgers University, Department of Economics

Bruce Mizrach


Rutgers University, Department of Economics

December 1, 2015


Abstract:     
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.

Number of Pages in PDF File: 32

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

JEL Classification: G12, G21, G24


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Date posted: July 16, 2013 ; Last revised: December 8, 2015

Suggested Citation

Gao, Cheng and Mizrach, Bruce, High Frequency Trading in the Equity Markets During US Treasury POMO (December 1, 2015). Available at SSRN: http://ssrn.com/abstract=2294038 or http://dx.doi.org/10.2139/ssrn.2294038

Contact Information

Cheng Gao
Rutgers University, Department of Economics ( email )
75 Hamilton Street
New Brunswick, NJ 08901
United States
Bruce Mizrach (Contact Author)
Rutgers University, Department of Economics ( email )
75 Hamilton Street
New Brunswick, NJ 08901
United States
(848) 932-8636 (Phone)
(732) 932-7416 (Fax)
HOME PAGE: http://snde.rutgers.edu/
Feedback to SSRN


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