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DOES SPEED MATTER? THE ROLE OF HIGH‐FREQUENCY TRADING FOR ORDER BOOK RESILIENCY
Author(s) -
Clapham Benjamin,
Haferkorn Martin,
Zimmermann Kai
Publication year - 2020
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12229
Subject(s) - market liquidity , high frequency trading , order (exchange) , order book , dark liquidity , set (abstract data type) , market impact , business , algorithmic trading , monetary economics , economics , financial economics , market microstructure , finance , computer science , programming language
We analyze 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 replenishing the order book. Therefore, we relate the net liquidity provision of high‐frequency traders, algorithmic traders, and human traders around these market impact events to order book resiliency. Although all groups of traders react, our results show that only high‐frequency traders reduce the spread within the first seconds after the market impact event. Order book depth replenishment, however, takes significantly longer and is mainly accomplished by human traders’ liquidity provision.