Limit order placement by high-frequency traders

The effectiveness of liquidity provision by HFT firms is an unexplored but central policy issue. Using unique data consisting of limit order placement, execution, and cancellations, we find that HFT firms do not cancel orders more frequently than non-HFT firms. HFT firms more effectively use order c...

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Bibliographic Details
Published inBorsa Istanbul Review Vol. 16; no. 4; pp. 185 - 209
Main Authors Subrahmanyam, Avanidhar, Zheng, Hui
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.12.2016
Elsevier
Subjects
G20
G14
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Summary:The effectiveness of liquidity provision by HFT firms is an unexplored but central policy issue. Using unique data consisting of limit order placement, execution, and cancellations, we find that HFT firms do not cancel orders more frequently than non-HFT firms. HFT firms more effectively use order cancellation to strategically manage their limit orders in anticipation of short-term price movements than non-HFT firms. HFT firms increase their liquidity provision during high volatility periods; their liquidity provision is less affected by order imbalance shocks than that of non-HFT firms. Overall, our results indicate that HFT limit orders exert a stabilizing influence.
ISSN:2214-8450
DOI:10.1016/j.bir.2016.09.006