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Does high-frequency trading actually improve market liquidity? A comparative study for selected models and measures

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dc.abstract.enThe increasing volume of messages sent to the exchange by algorithmic traders stimulates a fierce debate among academics and practitioners on the impacts of high-frequency trading (HFT) on capital markets. By comparing a variety of regression models that associate various measures of market liquidity with measures of high-frequency activity on the same dataset, we find that for some models the increase in high-frequency activity improves market liquidity, but for others, we get the opposite effect. We indicate that this ambiguity does not depend only on the stock market or the data period, but also on the used HFT measure: the increase of high-frequency orders leads to lower market liquidity whereas the increase in high-frequency trades improves liquidity. We hypothesize that the observed decrease in market liquidity associated with an increasing level of high-frequency orders is caused by a rise in quote volatility.
dc.affiliationUniwersytet Warszawski
dc.contributor.authorPalczewski, Andrzej
dc.contributor.authorKarkowska, Renata
dc.date.accessioned2024-01-24T22:11:53Z
dc.date.available2024-01-24T22:11:53Z
dc.date.copyright2023-01-03
dc.date.issued2023
dc.description.accesstimeAT_PUBLICATION
dc.description.financeŚrodki finansowe, o których mowa w art. 365 pkt. 2 ustawy
dc.description.versionFINAL_PUBLISHED
dc.description.volume64
dc.identifier.doi10.1016/J.RIBAF.2022.101872
dc.identifier.issn0275-5319
dc.identifier.urihttps://repozytorium.uw.edu.pl//handle/item/105161
dc.identifier.weblinkhttps://api.elsevier.com/content/article/PII:S0275531922002586?httpAccept=text/xml
dc.languageeng
dc.pbn.affiliationeconomics and finance
dc.relation.ispartofResearch in International Business and Finance
dc.relation.pages101872
dc.rightsCC-BY
dc.sciencecloudnosend
dc.subject.enHigh-frequency trading
dc.subject.enLiquidity
dc.subject.enAlgorithmic trading
dc.subject.enMarket microstructure
dc.titleDoes high-frequency trading actually improve market liquidity? A comparative study for selected models and measures
dc.typeJournalArticle
dspace.entity.typePublication