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Does Speed Matter? The Role Of High‐Frequency Trading For Order Book Resiliency

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  • Benjamin Clapham
  • Martin Haferkorn
  • Kai Zimmermann

Abstract

We analyze limit order book resiliency following liquidity shocks initiated by large market orders. Based on a unique data set, we investigate whether high‐frequency traders are involved in replenishing the order book. Therefore, we relate the net liquidity provision of high‐frequency traders, algorithmic traders, and human traders around these market impact events to order book resiliency. Although all groups of traders react, our results show that only high‐frequency traders reduce the spread within the first seconds after the market impact event. Order book depth replenishment, however, takes significantly longer and is mainly accomplished by human traders’ liquidity provision.

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  • Benjamin Clapham & Martin Haferkorn & Kai Zimmermann, 2020. "Does Speed Matter? The Role Of High‐Frequency Trading For Order Book Resiliency," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(4), pages 933-964, December.
    • Handle: RePEc:bla:jfnres:v:43:y:2020:i:4:p:933-964
    DOI: 10.1111/jfir.12229
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    References listed on IDEAS

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