Abstract

http://ssrn.com/abstract=2294038
 
 

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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

July 15, 2013


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: 30

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

JEL Classification: G12, G21, G24

working papers series





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Date posted: July 16, 2013  

Suggested Citation

Gao, Cheng and Mizrach, Bruce, High Frequency Trading in the Equity Markets During US Treasury POMO (July 15, 2013). 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
HOME PAGE: http://www.eden.rutgers.edu/~gaoch/
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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