Multiple Markets, Algorithmic Trading, and Market Liquidity
39 Pages Posted: 10 Feb 2014 Last revised: 19 Feb 2016
Date Written: February 10, 2016
Using a sample of NYSE firms from the first quarter of 2012, we show that the NBBO Depth is negatively affected by quote competition between exchanges and by excess Algorithmic Trading (AT) activity, but positively impacted by volume fragmentation. Trade execution quality also decreases with higher quote competition and AT activity but is better with higher volume fragmentation. In addition, we find that the U-shaped pattern of spreads is an S-shape, with higher spreads at the open and lower spreads at the close. NBBO depth has an inverse pattern to that of spreads.
Keywords: Algorithmic Traders, High Frequency Traders, HFT, Market Liquidity, Intraday Liquidity, Latency, Thor
JEL Classification: G12, G24, G15
Suggested Citation: Suggested Citation