Does Speed Matter? The Role of High-Frequency Trading for Order Book Resiliency

54 Pages Posted: 8 May 2015 Last revised: 30 Sep 2020

See all articles by Benjamin Clapham

Benjamin Clapham

Goethe University Frankfurt Faculty of Economics and Business Administration

Martin Haferkorn

Goethe University Frankfurt Faculty of Economics and Business Administration; European Securities and Markets Authority (ESMA)

Kai Zimmermann

Goethe University Frankfurt Faculty of Economics and Business Administration

Date Written: May 9, 2019

Abstract

We analyze limit order book resiliency following liquidity shocks initiated by large market orders. Based on a unique data set, we investigate whether high-frequency traders are involved in the replenishment of the order book. Therefore, we relate the net liquidity provision of high-frequency traders, algorithmic traders, and human traders around these market impact events to order book resiliency. While all groups of traders react, our results show that only high-frequency traders reduce the spread within the first seconds after the market impact event. Order book depth replenishment, however, takes significantly longer and is mainly accomplished by human traders' liquidity provision.

Keywords: High-Frequency Trading, Liquidity, Resiliency, Market Quality

JEL Classification: G10, G14, G18

Suggested Citation

Clapham, Benjamin and Haferkorn, Martin and Haferkorn, Martin and Zimmermann, Kai, Does Speed Matter? The Role of High-Frequency Trading for Order Book Resiliency (May 9, 2019). Paris December 2015 Finance Meeting EUROFIDAI - AFFI, Available at SSRN: https://ssrn.com/abstract=2603205 or http://dx.doi.org/10.2139/ssrn.2603205

Benjamin Clapham

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, 60323
Germany

Martin Haferkorn (Contact Author)

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, 60323
Germany

European Securities and Markets Authority (ESMA) ( email )

201-203 Rue de Bercy
​Paris, 75012
France

Kai Zimmermann

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

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