High-Frequency Trading in the Bund Futures Market

45 Pages Posted: 21 Jun 2016

See all articles by Kathi Schlepper

Kathi Schlepper

Deutsche Bundesbank; Goethe University Frankfurt

Date Written: 2016

Abstract

In this work, I study the impact of high-frequency trading (HFT) on price discovery and volatility in the Bund futures market. Using a new dataset based on microseconds, the focus of the study is on the reaction of high-frequency traders (HFTs) to major macroeconomic news events. I show that through their fast and strong reaction to news, HFTs contribute more to price discovery compared to Non-HFTs, but also add a higher share to noise than to permanent volatility. Moreover, I find evidence that HFTs tend to supply less liquidity after an unexpected rise in market volatility and prior to upcoming macroeconomic news events. These findings suggest that in times of high market stress, HFT behavior may exacerbate intraday price volatility and amplify the risk of market disruptions in fixed income markets.

Keywords: High-Frequency Trading, Price Discovery, Volatility

JEL Classification: G10, G12, G14

Suggested Citation

Schlepper, Kathi, High-Frequency Trading in the Bund Futures Market (2016). Bundesbank Discussion Paper No. 15/2016. Available at SSRN: https://ssrn.com/abstract=2797088

Kathi Schlepper (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Goethe University Frankfurt ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

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