Multiple Markets, Algorithmic Trading, and Market Liquidity

39 Pages Posted: 10 Feb 2014 Last revised: 19 Feb 2016

See all articles by James Upson

James Upson

University of Texas at El Paso

Robert A. Van Ness

University of Mississippi - Department of Finance

Date Written: February 10, 2016

Abstract

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

Upson, James and Van Ness, Robert A., Multiple Markets, Algorithmic Trading, and Market Liquidity (February 10, 2016). Available at SSRN: https://ssrn.com/abstract=2389922 or http://dx.doi.org/10.2139/ssrn.2389922

James Upson (Contact Author)

University of Texas at El Paso ( email )

500 West University
El Paso, TX 79968-0545
United States

Robert A. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

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