Liquidity Provision, Commonality and High Frequency Trading

EUROFIDAI Working Paper: 23/03/2018

64 Pages Posted: 14 Feb 2018 Last revised: 20 Oct 2018

See all articles by Panagiotis Anagnostidis

Panagiotis Anagnostidis

Institut Europlace de Finance (IEF) and European Financial Data Institute (EUROFIDAI)

Patrice C. Fontaine

Eurofidai (CNRS)

Date Written: October 17, 2018


What is the effect of high frequency trading (HFT) on systematic (il)liquidity risk? Theory predicts that liquidity commonality should be significant when access to information about prices is easier, through the transmission of liquidity shocks from one security to another, particularly during periods of increased price uncertainty. Based on the well-documented ability of HFT algorithms to have fast access to multiple price sources, our main hypothesis is that HFT contributes to the positive co-variation between firm-specific liquidity and market liquidity. Using HFT order and trade data from the Euronext Paris stock market, we find evidence that HFTs’ liquidity-supplying activity explains between 75% and 80% of a significant common (market) liquidity factor. Firm-specific liquidity supply co-varies significantly with the HFT-driven liquidity of the market portfolio. Moreover, HFT firm-specific liquidity supply is more sensitive to market-wide liquidity swings compared to non HFT firm-specific liquidity supply, especially during inter-day and intra-day periods of increased price volatility

Keywords: High-Frequency Trading, Liquidity, Liquidity commonality, Euronext Paris

JEL Classification: G1

Suggested Citation

Anagnostidis, Panagiotis and Fontaine, Patrice C., Liquidity Provision, Commonality and High Frequency Trading (October 17, 2018). EUROFIDAI Working Paper: 23/03/2018 . Available at SSRN: or

Panagiotis Anagnostidis (Contact Author)

Institut Europlace de Finance (IEF) and European Financial Data Institute (EUROFIDAI) ( email )


Patrice C. Fontaine

Eurofidai (CNRS) ( email )

150, rue de la Chimie - EUROFIDAI UMS CNRS 2748
UGA domaine universitaire
Grenoble Cedex 9, 38058

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