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Flashes of Trading Intent at NASDAQ

Author

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  • Skjeltorp, Johannes A.
  • Sojli, Elvira
  • Tham, Wing Wah

Abstract

We use the introduction and subsequent removal of the flash-order functionality from NASDAQ as a natural experiment to investigate the impact of voluntary disclosure of trading intent on market quality. We find that flash orders significantly improve liquidity in NASDAQ. Furthermore, overall market quality improves (deteriorates) when flash functionality is introduced (removed). This result can be attributed to increased competition among liquidity suppliers across competing trading venues. Alternatively, flash orders attract responses from reactive traders immediately after the announcement, attracting more “hidden liquidity” and lowering risk-bearing costs for the overall market.

Suggested Citation

  • Skjeltorp, Johannes A. & Sojli, Elvira & Tham, Wing Wah, 2016. "Flashes of Trading Intent at NASDAQ," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 51(1), pages 165-196, February.
    • Handle: RePEc:cup:jfinqa:v:51:y:2016:i:01:p:165-196_00
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    Cited by:

    1. Dionne, Georges & Zhou, Xiaozhou, 2019. "Information Environments and High Price Impact Trades: Implication for Volatility and Price Efficiency," Working Papers 19-3, HEC Montreal, Canada Research Chair in Risk Management, revised 04 Nov 2019.
    2. Wing Wah Tham & Elvira Sojli & Johannes A. Skjeltorp, 2018. "Cross-Sided Liquidity Externalities," Management Science, INFORMS, vol. 64(6), pages 2901-2929, June.
    3. Nimalendran, Mahendrarajah & Rzayev, Khaladdin & Sagade, Satchit, 2024. "High-frequency trading in the stock market and the costs of options market making," LSE Research Online Documents on Economics 124228, London School of Economics and Political Science, LSE Library.
    4. Nimalendran, Mahendrarajah & Rzayev, Khaladdin & Sagade, Satchit, 2022. "High-frequency trading in the stock market and the costs of option market making," LSE Research Online Documents on Economics 118885, London School of Economics and Political Science, LSE Library.
    5. Liu, Xia & Liu, Shancun & Qi, Zhen & Wen, Chunhui, 2020. "Discretionary liquidity trading, information production and market efficiency," Finance Research Letters, Elsevier, vol. 35(C).

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