Liquidity and Algorithmic Trading in Brazil

13 Pages Posted: 2 Jul 2019

See all articles by Henrique Ramos

Henrique Ramos

Universidade Federal do Rio Grande do Sul (UFRGS)

Marcelo Perlin

Escola de Administração - UFRGS

Date Written: February 18, 2019

Abstract

This paper provides evidence of the effect of algorithmic trading (AT) in the liquidity of the Brazilian equity market. A wide debate on the literature asserts that AT may be both beneficial and harmful to market quality. The results of our econometric estimates for a sample of 47 stocks through mid-2017 to mid-2018 show that when a larger horizon is analyzed (20 minutes), the lagged effect of AT reduces market quality. However, the lagged effect of one-minute AT activity reduces both spreads and price impact. Still, the effect of AT on market quality is sensitive to the horizon which is being analyzed.

Keywords: Liquidity, Algorithmic trading, Spreads, Market microstructure

JEL Classification: G11, C58

Suggested Citation

Ramos, Henrique and Perlin, Marcelo, Liquidity and Algorithmic Trading in Brazil (February 18, 2019). Available at SSRN: https://ssrn.com/abstract=3413130 or http://dx.doi.org/10.2139/ssrn.3413130

Henrique Ramos (Contact Author)

Universidade Federal do Rio Grande do Sul (UFRGS) ( email )

Av. Carlos Gomes 1111
Porto Alegre, Rio Grande do Sul 90480-004
Brazil

Marcelo Perlin

Escola de Administração - UFRGS ( email )

Porto-Alegre RS
Brazil

HOME PAGE: http://sites.google.com/site/marceloperlin/

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