High-Frequency Trading and Extreme Price Movements

46 Pages Posted: 28 Nov 2014 Last revised: 19 Jun 2020

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Allen Carrion

University of Memphis - Fogelman College of Business and Economics

Thibaut Moyaert

Louvain School of Management (UCL)

Ryan Riordan

Queen's University - Smith School of Business; Ludwig-Maximilians-University Munich, Faculty of Business Administration (Munich School of Management)

Andriy Shkilko

Wilfrid Laurier University - Finance

Konstantin Sokolov

University of Memphis - Fogelman College of Business and Economics

Date Written: February 9, 2017

Abstract

Are endogenous liquidity providers (ELPs) reliable in times of market stress? We examine the activity of a common ELP type – high frequency traders (HFTs) – around extreme price movements (EPMs). We find that on average HFTs provide liquidity during EPMs by absorbing imbalances created by non-high frequency traders (nHFTs). Yet HFT liquidity provision is limited to EPMs in single stocks. When several stocks experience simultaneous EPMs, HFT liquidity demand dominates their supply. There is little evidence of HFTs causing EPMs.

Keywords: Extreme price movements, jumps, high-frequency trading

JEL Classification: G10, G14

Suggested Citation

Brogaard, Jonathan and Carrion, Allen and Moyaert, Thibaut and Riordan, Ryan and Shkilko, Andriy and Sokolov, Konstantin, High-Frequency Trading and Extreme Price Movements (February 9, 2017). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2531122 or http://dx.doi.org/10.2139/ssrn.2531122

Jonathan Brogaard

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

HOME PAGE: http://www.jonathanbrogaard.com

Allen Carrion

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

Thibaut Moyaert

Louvain School of Management (UCL) ( email )

Belgium

Ryan Riordan

Queen's University - Smith School of Business ( email )

Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Ludwig-Maximilians-University Munich, Faculty of Business Administration (Munich School of Management) ( email )

Schackstr. 4
Munich, 80539
Germany

Andriy Shkilko (Contact Author)

Wilfrid Laurier University - Finance ( email )

LH 4050
75 University Ave. W.
Waterloo, Ontario N2L3C5
Canada
548-889-4497 (Phone)

Konstantin Sokolov

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

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