Ultra-Fast Activity and Intraday Market Quality
Cartea, A., Payne, R., Penalva, J. & Tapia, M. (2018). Ultra-Fast Activity and Intraday Market Quality. Journal of Banking and Finance, 99, pp. 157-181. doi: 10.1016/j.jbankfin.2018.12.003
Abstract
This paper studies the intraday relationship between ultra-fast machine-driven activity (UFA) and market quality in automated equity markets. We find that higher UFA is associated with lower intraday market quality (greater quoted and effective spreads and lower depth). This effect is economically significant, and robust to different specifications, endogeneity tests, and alternative measures of UFA. Our results hold after controlling for volatility, periods of unusually high UFA (a proxy for quote stuffing), and periods where UFA is primarily driven by fleeting orders inside the spread (a proxy for spoofing and competition between liquidity providers).
| Publication Type: | Article |
|---|---|
| Additional Information: | ©2018. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/ |
| Publisher Keywords: | High-Frequency Trading; HFT; Algorithmic Trading; Market Quality; Low Latency; Intraday trading; spoofing; fleeting orders; quote stuffing |
| Subjects: | H Social Sciences > HG Finance Q Science > QA Mathematics |
| Departments: | Bayes Business School > Finance |
| SWORD Depositor: |
Available under License Creative Commons Attribution Non-commercial No Derivatives.
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