Ultra-fast activity and intraday market quality

Author: 

Cartea, Á
Payne, R
Penalva, J
Tapia, M

Publication Date: 

1 February 2019

Journal: 

Journal of Banking and Finance

Last Updated: 

2019-04-26T05:10:32.117+01:00

Issue: 

7

Volume: 

99

DOI: 

10.1016/j.jbankfin.2018.12.003

page: 

157-181

abstract: 

© 2018 Elsevier B.V. This paper studies the intraday relationship between ultra-fast machine-driven activity (UFA) and market quality in automated equity markets. We find that higher UFA is associated with lower intraday market quality (greater quoted and effective spreads and lower depth). This effect is economically significant, and robust to different specifications, endogeneity tests, and alternative measures of UFA. Our results hold after controlling for volatility, periods of unusually high UFA (a proxy for quote stuffing), and periods where UFA is primarily driven by fleeting orders inside the spread (a proxy for spoofing and competition between liquidity providers).

Symplectic id: 

951309

Submitted to ORA: 

Submitted

Publication Type: 

Journal Article

ISBN-13: 

9781107091146

ISBN-10: 

1107091144