High-Frequency Trading During Flash Crashes: Walk of Fame or Hall of Shame?
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Datum
2020-03-01
Autor
Bellia, Mario
Christensen, Kim
Kolokolov, Aleksey
Pelizzon, Loriana
Renò, Roberto
SAFE No.
270
Metadata
Zur Langanzeige
Zusammenfassung
We show that High Frequency Traders (HFTs) are not beneficial to the stock market during flash crashes. They actually consume liquidity when it is most needed, even when they are rewarded by the exchange to provide immediacy. The behavior of HFTs exacerbate the transient price impact, unrelated to fundamentals, typically observed during a flash crash. Slow traders provide liquidity instead of HFTs, taking advantage of the discounted price. We thus uncover a trade-off between the greater liquidity and efficiency provided by HFTs in normal times, and the disruptive consequences of their trading activity during distressed times.
Forschungsbereich
Systemic Risk Lab
Financial Markets
Financial Markets
Schlagworte
flash crashes, high-frequency traders (hfts), liquidity provision, marketmaking
JEL-Klassifizierung
G10, G14
Thema
Consumption
Fiscal Stability
Trading and Pricing
Fiscal Stability
Trading and Pricing
Beziehungen
1
Publikationstyp
Working Paper
Link zur Publikation
Collections
- LIF-SAFE Working Papers [334]