Does Speed Matter? The Role of High-Frequency Trading for Order Book Resiliency
39 Pages Posted: 8 May 2015 Last revised: 15 May 2019
Date Written: May 9, 2019
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: Suggested Citation