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

38 Pages Posted: 8 May 2015 Last revised: 7 May 2018

Benjamin Clapham

Goethe University Frankfurt Faculty of Economics and Business Administration

Martin Haferkorn

Goethe University Frankfurt Faculty of Economics and Business Administration

Kai Zimmermann

Goethe University Frankfurt Faculty of Economics and Business Administration

Date Written: May 2, 2018

Abstract

This paper analyzes 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 liquidity shocks to order book resiliency. While all groups of traders react to the liquidity shock, our results show that only high-frequency traders reduce the spread within the first seconds after the shock. Order book depth replenishment, however, takes significantly longer and is 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 Zimmermann, Kai, Does Speed Matter? The Role of High-Frequency Trading for Order Book Resiliency (May 2, 2018). 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

Kai Zimmermann

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

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

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