Liquidity commonality and high frequency trading: Evidence from the French stock market

Anagnostidis, Panagiotis; Fontaine, Patrice

doi:10.1016/j.irfa.2019.101428

Cited by 16 publications

(9 citation statements)

References 74 publications

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“…Studies (Chung & Chuwonganant, 2009;Yılmaz et al, 2015) have analyzed and found that technological upgradation and transparent order system at the stock exchanges also improve stock liquidity, whereas Hendershott and Moulton (2011) provided evidence that transparency on account of higher automation of trading floor induced traders to frame complex trading strategies which reduce immediacy in trading and thereby reduce market liquidity. Also, Anagnostidis and Fontaine (2020) demonstrated that automation of trading has amplified the use of algorithmic trading that is mainly based on complex and common strategies that were found to adversely influence trading during the stress periods.…”

Section: Measurement Of Stock Market Liquiditymentioning

confidence: 99%

Stock Market Liquidity: A Literature Review

Naik

Reddy

2021

Sage Open

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The purpose of this study is to identify the key aspects that have been studied in the area of stock market liquidity, accumulate their important findings, and also provide a quantitative categorization of reviewed literature that will facilitate in conducting further research. The study analyzes relevant research papers published after the global financial crisis of 2008 and finds that measurement of liquidity, factors influencing liquidity, the relationship between market liquidity and expected return, and market liquidity risk and its relationship with expected returns have been explored in the context of the stock market liquidity. Among these, the factors influencing liquidity have been prominently researched in the reviewed studies. The study concludes that the identified areas can be potentially researched concerning the emerging markets by considering the multidimensional quality of market liquidity. Also, the inter-linkages between the liquidity of emerging markets with that of the global stock markets can be further evaluated.

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Section: Measurement Of Stock Market Liquiditymentioning

confidence: 99%

Stock Market Liquidity: A Literature Review

Naik

Reddy

2021

Sage Open

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“…This result supports HFTs' incremental monitoring capacity and, to a smaller extent, a habitat effect. Correspondingly, Anagnostidis and Fontaine (2020) demonstrate that, due to the speed of information diffusion and common trading strategies, HFTs' liquidity supply covariation proves higher in comparison to that of non-HFTs'. Moreover, the authors call attention to the dynamic nature of liquidity commonality and highlight the elevated systematic risk in the securities that are massively traded by HFTs during market-wide high distress periods.…”

Section: Commonalitymentioning

confidence: 85%

“…Liquidity shocks may destabilize the markets if they persist. HFTs, due to the commonality in their liquidity provision, may withdraw large amounts of liquidity simultaneously (Malceniece et al, 2019;Anagnostidis and Fontaine, 2020) engaging in the formation of liquidity shocks in the market. On the other hand, few studies identify that HFTs also help the recovery from liquidity shocks (see, for instance, Nawn and Banerjee, 2019;Clapham et al, 2019).…”

Section: Discussionmentioning

confidence: 99%

“…Similarly, 46% of all trading volume in the Canadian market is performed through 572 user IDs in 31 HFT firms (Boehmer et al, 2018). Largely correlated trading among this dominant but unpopulated trader type could aggravate high volatility periods and cause a substantial increase in the systemic liquidity risk (Malceniece et al, 2019;Anagnostidis and Fontaine, 2020).…”

Section: Discussionmentioning

confidence: 99%

“…For example, while the HFT liquidity provision may be beneficial to the market, it may turn harmful in association with alternative forms and HFT strategies (Aït-Sahalia and Saglam, 2017;Brogaard et al, 2014). Moreover, since liquidity provision by HFTs is highly correlated, i.e., acting almost simultaneously and in the same direction, HFTs can cause or mediate liquidity shocks (Malceniece et al, 2019;Anagnostidis and Fontaine, 2020). Although many aspects of HFT and liquidity have been empirically tested and documented so far, a comprehensive summary and a broad discussion of these results are missing.…”

Section: Introductionmentioning

confidence: 99%

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High-Frequency Trading and its Impact on Market Liquidity: A Review of Literature

Ersan

Dalgic

Ekinci

et al. 2021

Alanya Akademik Bakış

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High-frequency trading (HFT) has been dominating the activity in developed financial markets in the last two decades. Despite its recent formation, the literature on the impacts of HFT on financial markets and participants is broad. However, there are ongoing debates and unanswered questions within many subtopics. We survey through the research towards HFT effects on liquidity in an attempt to explain the coexistence of evidence regarding both the positive and the negative impacts of HFT. We name two main factors leading to mixed results. Former concerns the negative market conditions such as intraday shocks, through which HFT trading patterns may sharply change. Latter regards the certain characteristics of HFT liquidity provision with the potential to present externalities for the market.2 BYX exchange utilized by CBOE reduced order processing times by around sevenfold from 445 microseconds in 2009 to 64 microseconds in 2018 (Baldauf and Mollner, 2020). HFT firms are in an arms race that leads them to send data from exchanges to electronic traders in latencies as small as 4 nanoseconds (Sprothen, 2016). 3 Throughout the text, we use 'high-frequency trading (trader)' and 'low-latency trading (trader)' interchangeably. We use 'HFT' as the acronym for high-frequency trading; 'HFTs' as the acronym for high-frequency traders; and non-HFTs as the acronym for low-frequency traders (traders other than high-frequency traders).

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